potentially leading to excessive city sizes, as in Bangkok, Jakarta, and Mexico City. This relates to the aforementioned idea that favoritism leads to increased primacy and urban concentration and raises two questions. First, should we be concerned about excessive city sizes? Second, because excessive size increases congestion and lowers the quality of city life, residents and elites of favored cities may try to limit in-migration. Collectively, they would like to keep the favors without the added population; of course, individual firms may want to hire cheap migrant labor. What policies could residents or elites follow to restrain in-migration?

In urban models, modest increases in city size beyond an “optimal level” do not necessarily lead to substantial decreases in resident welfare. While there are increases in diseconomies, there are still scale benefits, and the net losses may be quite low. However, Henderson’s (2003) panel productivity study, the only study to look at this issue closely, implements an econometric model whereby one can calculate the best primacy level for each country (varying by country size). Best primacy maximizes productivity growth, as reflected in growth in real GDP per capita. A one standard deviation in primacy above its best level reduces a country’s annual growth 1.4 percentage points, a very large effect. Excessive size leads to wasted resources and reduced growth.

Cai’s (2006) description of Chinese policy on urbanization addresses whether residents and local policy makers resist in-migration. China had strong formal migration restrictions enforced through the household registration ( _hukou_ ) system, but they were lifted in 2001. The Chinese were concerned that cities like Beijing and Shanghai would be flooded with rural immigrants. Beijing and Shanghai are certainly favored with massive infrastructure investments and in capital markets, as the role of state-owned enterprises has increased over the past decade. The articulated policy for the largest cities relative to the free-migration policy for small cities is to “raise the doorsill” to stem in-migration. “Raise the doorsill” means to provide migrants with poor living conditions and restricted access to public services. Migrants live either in dorms or, in Beijing, in about 300 urban villages scattered throughout the city and on the urban fringe, with little or no access to the formal housing market. Urban villages are still under rural governance, where the local rural residents “farm the housing”—provide essentially slum housing for migrants. These are units in which 4–6 migrants live in a single room with all cooking, washing, and toilet facilities outside. Access to state schools, despite many policy initiatives, remains severely restricted for migrants. Most either leave their children back home or send them to quasi-legal private schools that face repeated attempts to close them and have unqualified teachers and very limited facilities.<sup>23</sup> Migrants are not part of social security systems in cities and have no access to local health insurance. The policy debates about the resulting increases in inequality between residents and migrants are muted by the recognition that improving conditions would only attract more migrants.

Inspired by this articulated policy for China, Feler and Henderson (2011) look at Brazil in the 1980s, before democratic reforms. National zoning regulations on formal sector housing created sizes potentially larger than what lower income residents wanted. The result was the 16