Commuting Paradox in a Core-periphery Model

We have extended an urban-peripheral model, in which the two regions differ in productivities, due to agglomeration externalities, arising in the urban area. The setup allows for the analysis of lockdown policies in presence of telecommuting. We compare the welfare gains and optimal transportation regulation under the four policies: 1) complete lockdown, when both commuting and migration is prohibited; 2) no-commuting policy with unrestricted migration; 3) combined policy, as a mixture of commuting and telecommuting in absence of migration; 4) the mixed policy under unrestricted mobility. We find that telecommuting becomes a crucial instrument used to attain an even distribution of population within the state in case when migration is allowed. The wages and rents in also the two regions level out. The study reveals that telecommuting may serve as a welfare-improving tool, since commuting creates inefficiencies, arising from costly transportation system. Finally, the model concludes, that partial lockdown policy should be followed by higher transportation tariffs.