TY  - JOUR
AU  - Desmet,Klaus
AU  - Rossi-Hansberg,Esteban
TI  - Urban Accounting and Welfare
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 16615
PY  - 2010
Y2  - December 2010
UR  - http://www.nber.org/papers/w16615
L1  - http://www.nber.org/papers/w16615.pdf
N1  - Author contact info:
Klaus Desmet
Department of Economics
Universidad Carlos III
28903 Getafe (Madrid)
SPAIN
E-Mail: klaus.desmet@uc3m.es

Esteban Rossi-Hansberg
Princeton University
Department of Economics
Fisher Hall
Princeton, NJ 08544-1021
Tel: 609/2584024
Fax: 650/725-5702
E-Mail: erossi@princeton.edu
AB  - This paper proposes a simple theory of a system of cities that decomposes the determinants of the city size distribution into three main components: efficiency, amenities, and frictions. Higher efficiency and better amenities lead to larger cities, but also to greater frictions through congestion and other negative effects of agglomeration. Using data on MSAs in the United States, we parametrize the model and empirically estimate efficiency, amenities and frictions. Counterfactual exercises show that all three characteristics are important in that eliminating any of them leads to large population reallocations, though the welfare effects from these reallocations are small. Overall, we find that the gains from worker mobility across cities are modest. When allowing for externalities, we find an important city selection effect: eliminating differences in any of the city characteristics causes many cities to exit. We apply the same methodology to Chinese cities and find welfare effects that are many times larger than in the U.S.
ER  -