Optimal City Structure
In this paper, we develop a quantitative general equilibrium model of a city that incorporates the many economic interactions that occur over the space of the city, including commuting, trade, and productive interactions. We show that despite the many spatial linkages, in the absence of externalities the competitive equilibrium is efficient; conversely, in the presence of spillovers, there exists opportunities for a city planner to increase the welfare of the city inhabitants by restricting the use of land (aEURoezoningaEUR We provide sufficient conditions for the optimal zoning policy that depend solely on observables and several key model parameters. Finally, we illustrate the flexibility of the model by applying it to study the observed zoning policy of the city of Chicago. Preliminary results suggest that the welfare of Chicago residents would increase if more area was allocated to residential usage in the central business district and more area was allocated to businesses in the outlying neighborhoods.