Who's in charge of the central city? The conflict between efficiency and equity in the design of a metropolitan area [An article from: Journal of Urban Economics]

This digital document is a journal article from Journal of Urban Economics, published by Elsevier in 2004. The article is delivered in HTML format and is available in your Amazon.com Media Library immediately after purchase. You can view it with any web browser.

Description:
A circular metropolitan area consists of a central city surrounded by a suburb. Households sort over the two jurisdictions based on public service levels and their costs of commuting to the metropolitan center. Using numerical simulations, we show that (1) there typically exist two equilibria: one in which the poor form the voting majority in the central city and the other in which the rich form the majority in the central city; (2) there is an efficiency vs. equity trade-off as to which equilibrium is preferred; and (3) if the central city contains only poor households, equity favors expanding the central city to include rich households. The third result arises not because of a fiscal subsidy from rich to poor households induced by a property tax but rather because of a change in house price capitalization.