Abstract
In a recent and interesting paper published in this journal (Vol. 21, 1991, pp. 491–509), Henderson and Abdel-Rahman (HAR in what follows) study the consequences of a taste for diversity in a system of specialized cities. They show that the equilibrium city size is too big at the unregulated market equilibrium. Moreover, the decentralization of the first-best according to HAR is more demanding than in standard Tiebout models (they argue that autonomous local governments able to levy lump-sum taxes are needed). I argue on the contrary that under local public ownership of the land, the first-best is reached when the firms are able to control their wages. With absentee landowners, equilibrium city size is too small at the unregulated market equilibrium.
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