Essays on Urban Externalities

This dissertation comprises three independent essays on urban externalities. Each chapter is written with its own introduction, literature review and references. All three essays study public policies concerning urban land use and transportation, their impacts on location decisions of households and/or firms, production, and welfare.;The first of the three essays examines how public policies should be designed to improve efficiency in a city with both car and public transit commuting. One main finding is that congestion tolls in fact suburbanize households. This challenges the common belief among urban planners and economists that reducing congestion requires more compact cities. Another important result is that imposing a restrictive or an expansive urban growth boundary (UGB) does not improve welfare and hence should not be used as an alternative policy. Interestingly, the UGB instrument should be used only if transit commuters receive subsidies from the city budget. This is an extension of the previous finding in the literature that in the absence of tolls, imposing either a restrictive or an expansionary UGB would achieve a lower-best.;The second essay explores in detail the economic conditions under which efficiency gains may be realized as cities expand and residential densities fall. Specifically, we examine how the outcomes of urban planning policies depend on consumer preferences for differentiated urban products and housing, fixed costs in the monopolistically competitive industry, and other factors in a system of cities framework. We find that it can be optimal for cities to suburbanize when the productivity advantages of agglomeration dominate the dispersion effect of congestion. This challenges the existing literature on how congestion and land use policies work in the monocentric model.;The third essay synthesizes a monopolistic competition framework with elements from urban economics and the new economic geography. In doing so, we investigate the impacts of urban externalities and trade costs on product diversity, stability of equilibria, and residential migration. We find that the optimal allocation generates more clustering compared to the market equilibrium and it may require fiscal cross-subsidies between regions. Another finding is that population dispersion remains stable at low congestion costs, in contrast to results in the existing literature.;The last chapter of this dissertation discusses the potential extensions of the three models developed in the previous chapters.