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CAN REGIONALIZATION OF LOCAL PUBLIC SERVICES INCREASE A REGION'S WEALTH? *
Author(s) -
McAndrews James,
Voith Richard
Publication year - 1993
Publication title -
journal of regional science
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.171
H-Index - 79
eISSN - 1467-9787
pISSN - 0022-4146
DOI - 10.1111/j.1467-9787.1993.tb00227.x
Subject(s) - subsidy , externality , distribution (mathematics) , welfare , local authority , economies of agglomeration , business , service (business) , public authority , public welfare , public good , economics , public economics , industrial organization , market economy , microeconomics , economic policy , marketing , public administration , mathematical analysis , mathematics , political science
. In the presence of agglomeration and congestion externalities the sequence of location choices made by firms results in an inefficient distribution of economic activity, since individual firms do not bear the congestion costs they impose on other firms. In this paper, we model the interaction of public authority service strategies and firm location choices. We show that a self‐interested regional authority can effect a welfare‐improving distribution of economic activity when compared with an economy without an authority or an economy with local authorities. However, we also show that the conditions under which the authority would induce a welfare enhancing distribution depends on the authority's strategic posture, as well as the nature and size of public subsidies for the authority. The conditions necessary for a regional authority to choose an efficiency enhancing strategy may be difficult to achieve.