Externalities, indivisibility, nonreplicability, and agglomeration

In this paper we argue that the impact of external scale economics and dise conomics on city size is not nearly as clear-cut as it is tacitly believed in urban economics. Similarly, city-size distortions are not caused by exte rnalities alone. Indivisibility and nonreplicability, which prevent establi shing the "right" number of cities, may represent a source for city-size di stortions which can be stronger than the standard resource misallocation re sulting from external scale economies and diseconomics. It follows that a d irect population dispersion policy is not just an inferior substitute to Pi gouvian taxes and subsidies but rather a useful complement. (C) 2000 Academ ic Press.