Are large Cities Too Large? A Contribution to the Debate.

The paper contributes to the debate abouyt whether market incentives induce excessive concentration of the urban population in cities that are too large. It answers two related questions which have not been satisfactorily answered in the existing literature. The first is whether the very existence of external economies always offset, partly or fully, the distortion in the population distribution caused by the external diseconomies associated with the unpriced transportation congestion and pollution. The second question is whether external effects alone are responsible for the market failure, as often asserted in the literature.