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The publication may also be distributed here under the terms of Article 25fa of the Dutch Copyright Act, indicated by the "Taverne" license. More information can be found on the University of Groningen website: https://www.rug.nl/library/open-access/self-archiving-pure/taverneamendment. The rationale for place-based policies 1.2.1 Spatial externalitiesThe main theoretical justification for using a place-based policy concerns market failures that have a spatial dimension (Neumark & Simpson, 2015). In this dissertation, I focus on a specific subset of these market failures: spatial externalities.In economics, an externality is defined as the costs or benefits that arise from any type of activity, by individuals or institutions, that affect the welfare of an uninvolved third party (Goolsbee et al., 2015). Given that these third parties are not participating in the economic transaction of a good or service, a competitive market will generate, from a societal perspective, a suboptimal equilibrium. An intuitive example of such an externality is the air Housing -Neighborhood externalitiesNeighborhoods in urban areas are subject to so-called neighborhood externalities that are generated by the concentration of specific households in segregated neighborhoods (Rosenthal, 2008). A concentration of either low-income or high-income households within a specific neighborhood respectively generates negative or positive spatial externalities. Low-income neighborhoods are, for example, characterized by below-average levels of public service provision (