We show that space matters in designing the optimal provision of local public goods (LPG's). Geography imposes a particular institutional structure of local governments due to the overlapping of market areas associated with different LPG's. The optimum can be decentralized through local governments that have jurisdiction over market areas of all LPG types. This implies that the appropriate suppliers of LPG's are metropolitan governments which finance them through user charges and land rent. In addition, our approach invalidates the prevailing theory of fiscal federalism, according to which a layer of government should be established for each type of LPG.

This paper investigates the effect of costs of adjustment on the dynamic characteristics of intra-urban resource allocation. The analysis is concentrated on the development pattern of an open city within a system of many cities both in steady-state and in variable-state economies. Competitive equilibrium of the urban system as a whole is also discussed and compared to Pareto optimum allocation. Some of the results that characterize the resource allocation under static analysis are reestablished for the dynamic case as well. But others that follow from comparative statics are shown to be incorrect under the dynamic analysis.

This paper investigates a representative landlord's profit-maximization problem in a stationary economy. The landlord must decide on the quality of his housing units at the time of construction, maintenance expenditure over the life of the building, and the time of demolition or rehabilitation. The analysis can be applied to other problems with similar economic structure, notably equipment and durable good maintenance, overhaul and replacement.

I. Introduction, 625.—II. Model I—the case of positive social costs of pollution at the urban center when natural absorption exists, 627.—III. Model II—the case of pollution externality in production, 633.—IV. Concluding remarks: integration of the two models, 637.