Multi-Firm City Versus Company Town: A Micro Foundation Model of Localization Economies
Hesham M. Abdel-Rahman
When do we have a company town and when do we have a multi-firm city? In this paper I analyze the impact of public infrastructure investment decisions on types of cities in a decentralized urban system. This is done in a one-sector spatial general equilibrium model of a closed economy. Investment in public infrastructures reduces the fixed set up cost of all firms within the city resulting in multi-firm cities. Thus, in this approach localization economies are modelled explicitly instead of assuming that larger industrial size within the city enhances productivity. On the other hand, when the infrastructure is not provided, a company town will be formed by a developer because of the fixed cost required by each firm. The decision of whether to invest in the provision of public infrastructures depends on the type of city that will provide households with the highest utility. This paper characterizes the conditions that lead to each of the two equilibrium configurations. Copyright 2000 Blackwell Publishers
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