TY  - JOUR
AU  - Henderson,J. Vernon
AU  - Venables,Anthony
TI  - The Dynamics of City Formation
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13769
PY  - 2008
Y2  - February 2008
UR  - http://www.nber.org/papers/w13769
L1  - http://www.nber.org/papers/w13769.pdf
N1  - Author contact info:
J. Vernon Henderson
Department of Economics
Box B
Brown University
Providence, RI 02912
Tel: 401/863-2886
Fax: 401/863-1970
E-Mail: j_henderson@brown.edu

Anthony Venables
Department of Economics
University of Oxford
Manor Road Building
Manor Road
Oxford OX1 3UQ, United Kingdom
and CEPR
E-Mail: tony.venables@economics.ox.ac.uk
AB  - This paper examines city formation in a country whose urban population is growing steadily over time, with new cities required to accommodate this growth. In contrast to most of the literature there is immobility of housing and urban infrastructure, and investment in these assets is taken on the basis of forward-looking behavior. In the presence of these fixed assets cities form sequentially, without the population swings in existing cities that arise in current models, but with swings in house rents. Equilibrium city size, absent government, may be larger or smaller than is efficient, depending on how urban externalities vary with population. Efficient formation of cities with internalization of externalities involves local government intervention and borrowing to finance development. The paper explores the institutions required for successful local government intervention.
ER  -