Urban Externalities and Human Well-Being

Abstract: The existence of externalities in fact makes it impossible to measure social costs and social well-being by market means. The solution of many urban problems demands an integrated approach. Urban economy is crucial domain where externalities disrupt efficiency and make it difficult reach prompt decisions. It is essential to pay attention to the function of a city and its spatial organization. Traditional economic theory fails to consider the externalities arising from the interaction of three city spheres: economic, ecological and social. The choice between environmental and social well-being is a very acute issue. The access to high-paying jobs and the availability of social benefits is associated in Russia with living or moving to cities or regions with an unfavorable environment. Authors have tried to find an efficient city size (in terms of population) for 114 Russian towns considering all three spheres and demonstrated how to achieve an efficient city size by means of ecological regulation and changes in city area.