The gap between free market and social optimum in the location decision of economic activity

Research output: Contribution to journalArticlepeer-review

14 Scopus citations

Abstract

This article presents a simplified model for comparison of the spatial distribution (core-periphery) of economic activity resulting from free market conditions, with the distribution that would lead to a social optimum. It further examines the public policy measures required to lead the economy towards the optimal distribution. Simulations are conducted to illustrate the mechanism of intervention of public policy and to test the feasibility of various measures. An important conclusion is that public investment in the creation of competitive ability in the periphery may provide the solution to market failure and therefore lead to the achievement of a social optimum greater than the free market optimum. Another preliminary conclusion is that public policy should consider a combination of measures (such as improving both regional infrastructure and the quality of the labour force), since focusing on a single measure may not be sufficient to achieve a social optimum.

Original languageEnglish
Pages (from-to)2045-2059
Number of pages15
JournalUrban Studies
Volume46
Issue number10
DOIs
StatePublished - 1 Sep 2009

ASJC Scopus subject areas

  • Environmental Science (miscellaneous)
  • Urban Studies

Fingerprint

Dive into the research topics of 'The gap between free market and social optimum in the location decision of economic activity'. Together they form a unique fingerprint.

Cite this