This article reconsiders the linear new economic geography model under heterogeneous agents developed by Tabuchi and Thisse (2002) by applying an analytical technique introduced by Ludema and Wooton (1999). Two problematic aspects are identified first, the bifurcation pattern for countries which differ in amenities is incorrect. I show that the degree of agglomeration is highest when trade costs are high. Besides this minor problem, the second critical issue concerns the welfare analysis. It is shown in this note that this model exhibits a latent tendency for overagglomeration when trade costs are high and underagglomeration when trade costs are low, bringing it in line with other welfare analyses of new economic geography models.
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Paper provided by Bavarian Graduate Program in Economics (BGPE) in its series Working Papers with number
029.
Find related papers by JEL classification: R13 - Urban, Rural, and Regional Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies O15 - Economic Development, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration O18 - Economic Development, Technological Change, and Growth - - Economic Development - - - Regional, Urban, and Rural Analyses