How should place-based policies be designed to efficiently promote retail agglomeration?

Local governments have recently adopted place-based policies in order to revitalize decayed shopping areas in downtown areas. Developing a multipurpose shopping model, we evaluate the welfare impacts of place-based policies for downtown retail agglomeration. In the model, retail stores are under monopolistic competition, and consumers are free to choose where to reside. Results show that, whether or not place-based policies are efficient depends on the recipients of government subsidies, even if the policies promote retail agglomeration in downtown areas. Specifically, subsidizing consumers residing near downtown areas is inevitably harmful from the viewpoint of welfare, whereas subsidizing retail stores can be efficient.