This paper tackles the issue of the optimality of agglomeration in a two-region economy with skilled/mobile and unskilled/immobile workers. The market leads to the optimal outcome when transport costs are high or low. However, for intermediate values, it yields agglomeration whereas dispersion is socially desirable. We show that competitive lobbying on factor mobility by the two groups of workers sustains the second best optimum.
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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number
2185.
Find related papers by JEL classification: F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies F22 - International Economics - - International Factor Movements and International Business - - - International Migration R13 - Urban, Rural, and Regional Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies R38 - Urban, Rural, and Regional Economics - - Production Analysis and Firm Location - - - Government Policies; Regulatory Policies
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