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Central Place Theory and City Size Distribution


  •  Corresponding author: Wen-Tai Hsu, Department of Economics, National University of Singapore, Faculty of Arts & Social Sciences, AS2 Level 6, 1 Arts Link, Singapore 117570. Email:

  • This article was previously circulated under the title ‘Central Place Theory and Zipf’s Law’. I am grateful to Tom Holmes, Sam Kortum and Erzo G. J. Luttmer for their advice and continuous support. For their helpful comments, I thank Marcus Berliant, V.V. Chari, Jiahua Che, Gilles Duranton, Jan Eeckhout, Masa Fujita, Xavier Gabaix, Luis Garicano, Yannis Ioannides, Patrick Kehoe, James Mirrlees, Tomoya Mori, Roger Myerson, Derek Neal, Shi Qi, Esteban Rossi-Hansberg, Maryam Saeedi, Robert Shimer, Tony E. Smith, Takatoshi Tabuchi, Matthew Turner, Harald Uhlig, Ping Wang, William Wheaton, two anonymous referees, and the seminar participants at University of Minnesota, Federal Reserve Bank of Minneapolis, University of Chicago, University of Toronto, Kyoto University, National Graduate Institute for Policy Studies, City University of Hong Kong, Chinese University of Hong Kong, Fudan University, the 2008 Annual Meeting of the American Real Estate and Urban Economics Association, the EITSS conference of Nagoya University, and the 2009 Meeting of the Urban Economics Association. All errors are mine.


This article proposes a theory of city size distribution via a hierarchy approach rather than the popular random growth process. It does so by formalising central place theory using an equilibrium entry model and specifying the conditions under which city size distribution follows a power law. The force driving the city size differences in this model is the heterogeneity in economies of scale across goods. The city size distribution under a central place hierarchy exhibits a power law if the distribution of scale economies is regularly varying, which is a general class that encompasses many well-known, commonly used distributions.