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A model of a spatial economy with trading posts

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  • Munetomo Ando

    ()
    (Graduate School of Economics, University of Tokyo)

  • Daisuke Oyama

    ()
    (Graduate School of Economics, University of Tokyo)

Abstract

This paper develops a framework in which exchange takes place at pairwise markets in a monetary economy with locations. In the economy there are several towns, each of which has pairwise markets characterized by trading posts. At each trading post, taking prices as given, agents submit commodities simultaneously with no resale, as opposed to an instantaneous trading in the Walrasian economy. Commodities can be transported across towns with costs. In this setting, we demonstrate that a trading center emerges in equilibrium if, and only if, heterogeneity in transportation costs among towns is large enough.

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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 18 (2002)
Issue (Month): 1 ()
Pages: 1-11

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Handle: RePEc:ebl:ecbull:eb-02r10002

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Keywords: concentration in transaction activities.;

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  1. Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 97(4), pages 927-54, August.
  2. Matsui, Akihiko, 1998. "Strong Currency and Weak Currency," Journal of the Japanese and International Economies, Elsevier, vol. 12(4), pages 305-333, December.
  3. Starrett, David, 1978. "Market allocations of location choice in a model with free mobility," Journal of Economic Theory, Elsevier, Elsevier, vol. 17(1), pages 21-37, February.
  4. Shapley, Lloyd S & Shubik, Martin, 1977. "Trade Using One Commodity as a Means of Payment," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 85(5), pages 937-68, October.
  5. Green, Edward J. & Zhou, Ruilin, 1998. "A Rudimentary Random-Matching Model with Divisible Money and Prices," Journal of Economic Theory, Elsevier, Elsevier, vol. 81(2), pages 252-271, August.
  6. Marcus Berliant & Hideo Konishi, 2000. "The Endogenous Formation of a City: Population Agglomeration and Marketplaces in a Location-Specific Production Economy," Boston College Working Papers in Economics, Boston College Department of Economics 451, Boston College Department of Economics.
  7. Berliant, Marcus & Wang, Ping, 1993. "Endogenous formation of a city without agglomerative externalities or market imperfections : Marketplaces in a regional economy," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 23(1), pages 121-144, March.
  8. Hideo Konishi, 1999. "Formation of Hub Cities: Transportation Cost Advantage and Population Agglomeration," Boston College Working Papers in Economics, Boston College Department of Economics 448, Boston College Department of Economics.
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