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.

In this paper we discuss the (Pareto) optimal provision of a public good (desirable or undesirable) in an intergenerational model of an economy, where regeneration is an endogenous decision variable of the households in the economy. We show that in addition to providing desirable public goods and/or levying the well known Pigouvian taxes on polluting industries, a government must subsidize households who are consuming a desirable public good and tax consumers who are consuming an undesirable public good (pollution). In addition, we show that there is a public rate of return, distinct from the market rate of return, that should be used by the government for the evaluation of investments in public goods. This public rate of return is smaller than the market rate of return in a growing economy and larger than the market rate of return in a declining economy. We investigate biases in both the public and market rates of return, as well as in other parameters which characterize the economy, as a result of nonoptimal governmental behavior. We discuss the question of how to aggregate biases due to different public goods. 1. INTRODUCTION THE RENEWED INTEREST in the interrelationship between household behavior and economic growth has recently been emphasized by the contributions of Nerlove [15] and of Razin and Ben Zion [17], both of which offer an intergenerational model of population growth. In this paper we follow the lead of Razin and Ben Zion but add to the economy a public good (desirable or undesirable) and a government whose function is to insure the (Pareto) optimal provision of this public good. We assume a homogeneous population with respect to tastes, abilities, and initial endowments and thus we address only efficiency considerations.