INCOME DISPARITY, TIME ALLOCATION, AND SOCIAL-WELFARE IN A SYSTEM OF CITIES

The objective of this paper is to examine the formation of specialized cities with multiple types of households in a decentralized system of cities. This is done in a two-sector spatial general-equilibrium mode l of a closed economy consisting of two groups of labor forces: a cont inuum of unskilled labor used to produce a food product, and a continu um of skilled labor used in the production of a high-tech product. Cit ies are formed in this model as a result of investment in public infra structure. This investment leads to a reduction in commuting cost and consequently to an increase in the time that households can utilize fo r work and leisure. The paper characterizes the equilibrium solution f or a purely specialized system of cities and presents some comparative static results. Moreover, the paper presents an explanation for the v ariation in city sizes as a result of differences in households' value of time. Finally, the paper analyzes the determinants of income dispa rity between the two different types of cities and its impacts on soci al welfare.