Optimal Spatial Policies, Geography, and Sorting*

By Pablo D. Fajgelbaum, Cecile Gaubert. Quarterly Journal of Economics, 2018

163 citations recorded by the source corpus.

We study optimal spatial policies in a quantitative trade and geography framework with spillovers and spatial sorting of heterogeneous workers. We characterize the spatial transfers that must hold in efficient allocations, as well as labor subsidies that can implement them. There exists scope for welfare-enhancing spatial policies even when spillovers are common across locations. Using data on U.S. cities and existing estimates of the spillover elasticities, we find that the U.S. economy would benefit from a reallocation of workers to currently low-wage cities. The optimal allocation features a greater share of high-skill workers in smaller cities relative to the observed allocation. Inefficient sorting may lead to substantial welfare costs.

View Paper: https://www.semanticscholar.org/paper/9f7f1cce9397339bc706ed3239b760e31022144b

Citations in the corpus

• Place-Based Policies and Spatial Disparities across European Cities (2020, unknown): “…how it affects congestion externalities: for example, if displacement from richer to poorer cities reduces both congestion and agglomeration externalities, the net effect might decrease productivity, but increase welfare (for example, Fajgelbaum and Gaubert 2020; Henkel, Seidel, and Suedekum 2018).”