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When Veblen meets Krugman

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  • Christian Ghiglino
  • Antonella Nocco

Abstract

We introduce relative concerns in the form of conspicuous consumption in a standard economic geography model a la Krugman. The primary intuition is that conspicuous consumption imposes a negative externality on some agents and generates a centrifugal force. We show that this is not always the case as the relative concern also rises the demand for the sophisticated good, strengthening the standard centripetal market size effect. We show that the resulting force is very sensitive to the topology of the network of "conspicuous" links in each region and on the level of economic integration. For instance, with relatively large shares of income devoted to the consumption of the standard good, we show that when trade is moderately costly and classes of workers are segregated, relative concerns tends to stabilize the symmetric equilibrium; on the other hand, if workers of different classes interact via their relative concerns, conspicuous consumption is a centripetal force generating stable fully or partially agglomerated equilibria. Finally, when the level of integration is high, the intuition holds and even small relative concerns destabilize the full agglomeration equilibrium, which is stable in the Krugman model.

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Bibliographic Info

Paper provided by DEGIT, Dynamics, Economic Growth, and International Trade in its series DEGIT Conference Papers with number c017_030.

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Length: 70 pages
Date of creation: Sep 2012
Date of revision:
Handle: RePEc:deg:conpap:c017_030

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Related research

Keywords: agglomeration; conspicuous consumption; city dynamics; migration; network effects; economic geography;

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References

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  1. Tabuchi, Takatoshi & Thisse, Jacques-François, 2001. "Taste Heterogeneity, Labour Mobility and Economic Geography," CEPR Discussion Papers 3114, C.E.P.R. Discussion Papers.
  2. Pflüger, Michael P. & Suedekum, Jens, 2007. "On Pitchforks and Tomahawks," IZA Discussion Papers 3258, Institute for the Study of Labor (IZA).
  3. A. Abel, 2010. "Asset prices under habit formation and catching up with the Jones," Levine's Working Paper Archive 1395, David K. Levine.
  4. Murata, Yasusada, 2003. "Product diversity, taste heterogeneity, and geographic distribution of economic activities:: market vs. non-market interactions," Journal of Urban Economics, Elsevier, vol. 53(1), pages 126-144, January.
  5. Berliant, Marcus & Kung, Fan-chin, 2009. "Bifurcations in Regional Migration Dynamics," MPRA Paper 13053, University Library of Munich, Germany.
  6. Blanchflower, David G. & Oswald, Andrew J., 2004. "Well-being over time in Britain and the USA," Journal of Public Economics, Elsevier, vol. 88(7-8), pages 1359-1386, July.
  7. Liu, Xiaodong & Patacchini, Eleonora & Zenou, Yves, 2011. "Peer Effects in Education, Sport, and Screen Activities: Local Aggregate or Local Average?," CEPR Discussion Papers 8477, C.E.P.R. Discussion Papers.
  8. Rodney D. Ludema & Ian Wooton, 1997. "Regional Integration, Trade, and Migration: Are Demand Linkages Relevant in Europe?," Working Papers 9704, Business School - Economics, University of Glasgow, revised Jul 1997.
  9. Christian Ghiglino & Sanjeev Goyal, 2008. "Keeping up with the neighbours: social interaction in a market economy," Economics Discussion Papers 655, University of Essex, Department of Economics.
  10. Antonella Nocco, 2009. "Preference Heterogeneity And Economic Geography," Journal of Regional Science, Wiley Blackwell, vol. 49(1), pages 33-56.
  11. Veblen, Thorstein, 1899. "The Theory of the Leisure Class," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, number veblen1899.
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Cited by:
  1. Helsley, Robert W. & Zenou, Yves, 2011. "Social Networks and Interactions in Cities," IZA Discussion Papers 5506, Institute for the Study of Labor (IZA).

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