Score contribution per author:
α: calibrated so average coauthorship-adjusted count equals average raw count
How can land use policy enhance the exploitation of external urban agglomeration economies? In a system of heterogeneous cities, we show that the second-best land use policy constrains city creation, while subsidizing (taxing) urban development in cities in which the marginal-average productivity gap is above (below) average. This policy cannot be decentralized to competitive urban developers, yet competition among urban developers does result in a lower-best outcome in which development is subsidized everywhere if city creation is unconstrained. A numerical application indicates that a substantial share of the welfare gains from implementing a second-best land use policy may then still be attained, although the aggregate amount of land in urban use is considerably larger.