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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. Berliant, Marcus & Kung, Fan-chin, 2009. "Bifurcations in regional migration dynamics," Regional Science and Urban Economics, Elsevier, vol. 39(6), pages 714-720, November.
  2. Christian Ghiglino & Sanjeev Goyal, 2010. "Keeping Up with the Neighbors: Social Interaction in a Market Economy," Journal of the European Economic Association, MIT Press, vol. 8(1), pages 90-119, 03.
  3. TABUCHI, Takatoshi & THISSE, Jacques-François, 2001. "Taste heterogeneity, labor mobility and economic geography," CORE Discussion Papers 2001044, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. Blanchflower, David G. & Oswald, Andrew J., 2001. "Well-Being Over Time in Britain and the USA," The Warwick Economics Research Paper Series (TWERPS) 616, University of Warwick, Department of Economics.
  5. 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.
  6. 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.
  7. Pflüger, Michael P. & Suedekum, Jens, 2007. "On Pitchforks and Tomahawks," IZA Discussion Papers 3258, Institute for the Study of Labor (IZA).
  8. eleonora patacchini & Yves Zenou & Xiaodong Liu, 2012. "Peer effects in education, sport and screen activities: local aggregate or local average?," 2012 Meeting Papers 1198, Society for Economic Dynamics.
  9. Antonella Nocco, 2009. "Preference Heterogeneity And Economic Geography," Journal of Regional Science, Wiley Blackwell, vol. 49(1), pages 33-56.
  10. Andrew B. Abel, . "Asset Prices Under Habit Formation and Catching Up With the Jones," Rodney L. White Center for Financial Research Working Papers 1-90, Wharton School Rodney L. White Center for Financial Research.
  11. 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.
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Cited by:
  1. Helsley, Robert W. & Zenou, Yves, 2014. "Social networks and interactions in cities," Journal of Economic Theory, Elsevier, vol. 150(C), pages 426-466.

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