The Henry George Theorem in a Second-Best World

Summary

This 2015 Journal of Urban Economics paper by Behrens, Kanemoto, and Murata strengthens the Henry George Theorem by showing it survives in a "second-best" world — one with the frictions and distortions that the original idealised model assumed away.

Key Finding

The classic theorem holds under restrictive first-best conditions. Behrens et al. show that, even with increasing returns, agglomeration economies, and pre-existing distortions like property taxes, a version of the result still holds: land rents remain tightly linked to the optimal financing of public goods. This makes the theoretical case for land-rent funding of public goods far more robust to real-world complications.

Bears On

• Concept: Henry George Theorem
• Outcome: Public goods can be funded from the land rent they create

Sources

1. Behrens, Kanemoto & Murata (2015), "The Henry George Theorem in a second-best world," Journal of Urban Economics. Publisher