Working Paper: CEPR ID: DP933
Authors: Jacques-François Thisse; David E. Wildasin
Abstract: This paper presents a model of strategic locational choice by duopolistic firms in an urban area where consumer locations are endogenous and where a public facility is exogenously fixed. A welfare analysis taking their strategic behaviour into account is conducted. It is shown that the firms' equilibrium locations often differ from the optimal locations which, in contrast to standard location theory, are not at the quartiles of the urban area. Corrective transportation taxes or subsidies can be used to support an optimal locational structure. Changes in transportation costs require unit-for-unit offsetting changes in transportation taxes or subsidies.
Keywords: transportation policy; urban structure; firm location; public facility
JEL Codes: H21; H54; R30; R48
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Transportation costs (L91) | Firm location choices (R30) |
| Transportation taxes/subsidies (H23) | Firm location choices (R30) |
| Transportation costs (L91) | Necessary policy adjustments (E61) |
| Firm location choices (R30) | Optimal urban structure (R12) |
| Optimal tax on transportation (H21) | Transportation costs (L91) |
| Strategic location choices (R30) | Market failures (D52) |
| Transportation costs changes (R48) | Adjustments in taxes/subsidies (H23) |