Armed with recurring analyses since the mid 1960s, economists believe that the under-pricing of traffic congestion in urban areas causes not only excessive travel but also excessively low land use densities and excessively spread out cities, a condition popularly known as urban sprawl. This...

This study discusses the reasons for market failure and its bias in an economy with two cities and two final goods: tradeable differentiated products and non-tradeable housing. It is shown that inside the city, as in Dixit and Stiglitz (1977), diversity (number of firms) is too small. With...