Agglomeration economies and optimal efficiency wage

Jellal, Mohamed (2014): Agglomeration economies and optimal efficiency wage.

Abstract

In this paper we consider a model of optimal efficiency and agglomeration economies .Given the presence of urban and social externalities and in the absence of corrective policy, the efficiency wage chosen in decentralized market economy is too high. Indeed, in her optimal choice of wage and employment, the representative firm does not take into account of these agglomeration positive externalities which leads to a sub optimal city size. We have shown that an optimal wage employment allocation exists and can be implemented through a subvention taxation policy if it is available.

• Item Type: MPRA Paper
• Language: English
• Keywords: Efficiency Wages, Solow Condition, Agglomeration Economies, Optimal City Size, Subvention Taxation Policy
• Subjects: H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H21 - Efficiency ; Optimal Taxation; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H23 - Externalities ; Redistributive Effects ; Environmental Taxes and Subsidies; J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J31 - Wage Level and Structure ; Wage Differentials; J - Labor and Demographic Economics > J6 - Mobility, Unemployment, Vacancies, and Immigrant Workers > J64 - Unemployment: Models, Duration, Incidence, and Job Search; J - Labor and Demographic Economics > J6 - Mobility, Unemployment, Vacancies, and Immigrant Workers > J68 - Public Policy; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R0 - General

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