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Agglomeration under forward-looking expectations: Potentials and global stability

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  • Oyama, Daisuke

Abstract

This paper considers a class of migration dynamics with forward-looking agents in a multi-country solvable variant of the core-periphery model of Krugman [Krugman, P., 1991. Increasing returns and economic geography. Journal of Political Economy 99, 483-499]. We find that, under a symmetric externality assumption, our static model admits a potential function, which allows us to identify a stationary state that is uniquely absorbing and globally accessible under the perfect foresight dynamics whenever the degree of friction in relocation decisions is sufficiently small. In particular, when trade barriers are low enough, full agglomeration in the country with the highest barrier is the unique stable state for small frictions. New aspects in trade and tax policy that arise due to forward-looking behavior are discussed.

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Bibliographic Info

Article provided by Elsevier in its journal Regional Science and Urban Economics.

Volume (Year): 39 (2009)
Issue (Month): 6 (November)
Pages: 696-713

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Handle: RePEc:eee:regeco:v:39:y:2009:i:6:p:696-713

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Keywords: Economic geography Agglomeration Perfect foresight dynamics History versus expectations Stability Potential game Equilibrium selection;

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Citations

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Cited by:
  1. Mossay, Pascal, 2013. "A theory of rational spatial agglomerations," Regional Science and Urban Economics, Elsevier, vol. 43(2), pages 385-394.
  2. Fujishima, Shota, 2013. "Evolutionary implementation of optimal city size distributions," Regional Science and Urban Economics, Elsevier, vol. 43(2), pages 404-410.
  3. Akamatsu, Takashi & Takayama, Yuki & Ikeda, Kiyohiro, 2012. "Spatial discounting, Fourier, and racetrack economy: A recipe for the analysis of spatial agglomeration models," Journal of Economic Dynamics and Control, Elsevier, vol. 36(11), pages 1729-1759.
  4. Oyama, Daisuke, 2006. "History versus Expectations in Economic Geography Reconsidered," MPRA Paper 9287, University Library of Munich, Germany.
  5. Oyama, Daisuke & Tercieux, Olivier, 2009. "Iterated potential and robustness of equilibria," Journal of Economic Theory, Elsevier, vol. 144(4), pages 1726-1769, July.
  6. Ikeda, Kiyohiro & Akamatsu, Takashi & Kono, Tatsuhito, 2012. "Spatial period-doubling agglomeration of a core–periphery model with a system of cities," Journal of Economic Dynamics and Control, Elsevier, vol. 36(5), pages 754-778.
  7. Akamatsu, Takashi & Fujishima, Shota & Takayama, Yuki, 2014. "On Stable Equilibria in Discrete-Space Social Interaction Models," MPRA Paper 55938, University Library of Munich, Germany.
  8. Daisuke Oyama & Satoru Takahashi & Josef Hofbauer, 2011. "Perfect foresight dynamics in binary supermodular games," International Journal of Economic Theory, The International Society for Economic Theory, vol. 7(3), pages 251-267, 09.
  9. Akamatsu, Takashi & Takayama, Yuki, 2009. "A Simplified Approach to Analyzing Multi-regional Core-Periphery Models," MPRA Paper 21739, University Library of Munich, Germany, revised 29 Oct 2009.
  10. Anna Agliari & Pasquale Commendatore & Ilaria Foroni & Ingrid Kubin, 2014. "Expectations and industry location: a discrete time dynamical analysis," Decisions in Economics and Finance, Springer, vol. 37(1), pages 3-26, April.

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