Timothée Demont : timothee.demont[at]univ-amu.fr
Roberta Ziparo : rziparo[at]gmail.com
We upend the received economic wisdom that cities are too big. This wisdom assumes that city sites are homogeneous, migration is unfettered, land is given to incoming migrants, and federal taxes are neutral. In a more general city system with heterogeneous sites, we demonstrate that cities may be inefficiently small with local governments or unrestricted migration. A quantitative simulation suggests that cities may be too numerous, with the best sites underpopulated, for a wide range of parameter values that resemble developed countries. Welfare costs from free migration equilibria appear small, whereas they appear substantial when local governments control city size.