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The Endogenous Formation of a City: Population Agglomeration and Marketplaces in a Location-Specific Production Economy

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Author Info
Marcus Berliant (Washington University in St. Louis)
Hideo Konishi () (Boston College)

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Abstract

Much of the literature on the endogenous generation of a city employs increasing returns to scale in order to obtain agglomeration. In contrast, the model considered here focuses on the role of marketplaces or trading centers in the agglomeration of population as cities. Gains to trade in combination with transportation and marketplace setup costs suffice to endogenously generate a city or cities with one or multiple marketplaces. It is assumed that consumers are fully mobile while production functions are location-specific. The exchange of commodities takes place in competitive markets at the marketplaces, while the number and locations of the marketplaces are determined endogenously using a core concept. Unlike the standard literature of urban economics, our model can deal with differences in geography by letting the setup costs of marketplaces and the transportation system depend on location. After showing that an equilibrium exists and that equilibrium allocations are the same as core allocations, we investigate the equilibrium number and locations of marketplaces, the population distribution, and land prices. In contrast with earlier literature, the results are general in the sense that specific functional forms are not needed to obtain existence of equilibrium, equilibria are first best, and equilibria are locally unique (in our examples).

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Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 451.

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Length: 34 pages
Date of creation: 01 Jan 2000
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Publication status: published, Regional Science and Urban Economics 30, 289-324 (2000)
Handle: RePEc:boc:bocoec:451

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  1. Berliant, Marcus & ten Raa, Thijs, 1991. "On the continuum approach of spatial and some local public goods or product differentiation models: Some problems," Journal of Economic Theory, Elsevier, vol. 55(1), pages 95-120, October. [Downloadable!] (restricted)
  2. Roberts, Donald John, 1974. "The Lindahl solution for economies with public goods," Journal of Public Economics, Elsevier, vol. 3(1), pages 23-42, February. [Downloadable!] (restricted)
  3. Ciccone, Antonio & Hall, Robert E, 1996. "Productivity and the Density of Economic Activity," American Economic Review, American Economic Association, vol. 86(1), pages 54-70, March. [Downloadable!] (restricted)
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  4. Berliant, M. & Fujita, M., 1990. "Alonso'S Discrete Population Model Of Land Use: Efficient Allocations And Competitive Equilibria," RCER Working Papers 217, University of Rochester - Center for Economic Research (RCER).
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  5. Yamazaki, Akira, 1978. "An Equilibrium Existence Theorem without Convexity Assumptions," Econometrica, Econometric Society, vol. 46(3), pages 541-55, May. [Downloadable!] (restricted)
  6. Vasil'ev, Valery & Weber, Shlomo & Wiesmeth, Hans, 1995. "Core Equivalence with Congested Public Goods," Economic Theory, Springer, vol. 6(3), pages 373-87, November.
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  7. Paul Krugman, 1992. "Geography and Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262610868.
  8. Mas-Colell, Andreu, 1977. "Indivisible commodities and general equilibrium theory," Journal of Economic Theory, Elsevier, vol. 16(2), pages 443-456, December. [Downloadable!] (restricted)
  9. 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, vol. 23(1), pages 121-144, March. [Downloadable!] (restricted)
  10. Bryan Ellickson & William Zame, 2005. "A competitive model of economic geography," Economic Theory, Springer, vol. 25(1), pages 89-103, 01. [Downloadable!] (restricted)
  11. Hendricks, Ken & Piccione, Michele & Tan, Guofu, 1995. "The Economics of Hubs: The Case of Monopoly," Review of Economic Studies, Blackwell Publishing, vol. 62(1), pages 83-99, January. [Downloadable!] (restricted)
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  12. Konishi, Hideo, 1996. "Voting with Ballots and Feet: Existence of Equilibrium in a Local Public Good Economy," Journal of Economic Theory, Elsevier, vol. 68(2), pages 480-509, February. [Downloadable!] (restricted)
  13. Fujita, Masahisa & Krugman, Paul, 1995. "When is the economy monocentric?: von Thunen and Chamberlin unified," Regional Science and Urban Economics, Elsevier, vol. 25(4), pages 505-528, August. [Downloadable!] (restricted)
  14. Wooders, Myrna, 1980. "The Tiebout Hypothesis: Near Optimality in Local Public Good Economies," Econometrica, Econometric Society, vol. 48(6), pages 1467-85, September. [Downloadable!] (restricted)
  15. Berliant, Marcus & ten Raa, Thijs, 1994. "Regional science: The state of the art," Regional Science and Urban Economics, Elsevier, vol. 24(5), pages 631-647, October. [Downloadable!] (restricted)
  16. Schweizer, Urs & Varaiya, Pravin & Hartwick, John, 1976. "General equilibrium and location theory," Journal of Urban Economics, Elsevier, vol. 3(3), pages 285-303, July. [Downloadable!] (restricted)
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  19. Diamantaras, Dimitrios & Gilles, Robert P & Scotchmer, Suzanne, 1996. "Decentralization of Pareto Optima in Economies with Public Projects, Nonessential Private Goods and Convex Costs," Economic Theory, Springer, vol. 8(3), pages 555-64, October.
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  21. Imai, Haruo, 1982. "CBD hypothesis and economies of agglomeration," Journal of Economic Theory, Elsevier, vol. 28(2), pages 275-299, December. [Downloadable!] (restricted)
  22. Foley, Duncan K, 1970. "Lindahl's Solution and the Core of an Economy with Public Goods," Econometrica, Econometric Society, vol. 38(1), pages 66-72, January. [Downloadable!] (restricted)
  23. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-99, June. [Downloadable!] (restricted)
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  24. Papageorgiou, Yorgo Y & Smith, Terrence R, 1983. "Agglomeration as Local Instability of Spatially Uniform Steady-States," Econometrica, Econometric Society, vol. 51(4), pages 1109-19, July. [Downloadable!] (restricted)
  25. Hartwick, Philip G & Hartwick, John M, 1974. "Efficient Resource Allocation in a Multinucleated City with Intermediate Goods," The Quarterly Journal of Economics, MIT Press, vol. 88(2), pages 340-52, May. [Downloadable!] (restricted)
  26. Palivos, Theodore & Wang, Ping, 1996. "Spatial agglomeration and endogenous growth," Regional Science and Urban Economics, Elsevier, vol. 26(6), pages 645-669, December. [Downloadable!] (restricted)
  27. Jackson, Matthew O. & Wolinsky, Asher, 1996. "A Strategic Model of Social and Economic Networks," Journal of Economic Theory, Elsevier, vol. 71(1), pages 44-74, October. [Downloadable!] (restricted)
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  28. Papageorgiou, Yorgos Y. & Pines, David, 1990. "The logical foundations of urban economics are consistent," Journal of Economic Theory, Elsevier, vol. 50(1), pages 37-53, February. [Downloadable!] (restricted)
  29. Berliant, Marcus, 1985. "Equilibrium models with land : A criticism and an alternative," Regional Science and Urban Economics, Elsevier, vol. 15(2), pages 325-340, June. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Marcus Berliant & Yves Zenou, 2004. "Labor Differentiation and Agglomeration in General Equilibrium," Urban/Regional 0408003, EconWPA. [Downloadable!]
  2. Diamantaras, D. & Gilles, R.P & Ruys, P.H.M., 1994. "Efficiency and Separability in Economies with a Trade Center," Discussion Paper 107, Tilburg University, Center for Economic Research. [Downloadable!]
  3. Scott E. Page, 1998. "On the Emergence of Cities," Research in Economics 98-08-075e, Santa Fe Institute. [Downloadable!]
  4. Munetomo Ando & Daisuke Oyama, 2002. "A model of a spatial economy with trading posts," Economics Bulletin, Economics Bulletin, vol. 18(1), pages 1-11. [Downloadable!]
  5. Daniel P. McMillen, 2003. "Employment subcenters in Chicago: past, present, and future," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q II, pages 2-14. [Downloadable!]
  6. Jose Noguera S., 2001. "Barter Economies and Centralized Merchants," Macroeconomics 0012015, EconWPA. [Downloadable!]
    Other versions:
  7. Sukkoo Kim, 2002. "The Reconstruction of the American Urban Landscape in the Twentieth Century," NBER Working Papers 8857, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Sukkoo Kim, 1997. "Regions, Resources, and Economic Geography: Sources of U.S. Regional Comparative Advantage, 1880-1987," NBER Working Papers 6322, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Cuberes, David, 2008. "A Model of Sequential City Growth," MPRA Paper 8431, University Library of Munich, Germany. [Downloadable!]
  10. Jose Noguera, 2001. "The Appearance of Carriers and the Origins of Money," CERGE-EI Working Papers wp169, The Center for Economic Research and Graduate Education - Economic Institute, Prague. [Downloadable!]
    Other versions:
  11. Sukkoo Kim, 1999. "Urban Development in the United States, 1690-1990," NBER Working Papers 7120, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  12. Hideo Konishi, 2006. "Tiebout's Tale in Spatial Economies: Entrepreneurship, Self-Selection, and Efficiency," Boston College Working Papers in Economics 655, Boston College Department of Economics, revised 03 Jan 2008. [Downloadable!]
    Other versions:
  13. Hideo Konishi, 1999. "Formation of Hub Cities: Transportation Cost Advantage and Population Agglomeration," Boston College Working Papers in Economics 448, Boston College Department of Economics. [Downloadable!]
    Other versions:
  14. Matthew Allen Turner, 2006. "A Simple Theory of Smart Growth and Sprawl," Working Papers tecipa-208, University of Toronto, Department of Economics. [Downloadable!]
    Other versions:
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