We analyse the political determination of transportation costs in an analytically solvable core-periphery model. In a benchmark case with certainty about where agglomeration takes place, we find that a majority of voters prefers low trade costs and the resulting equilibrium is an industrialised core and a de-industrialised periphery. Allowing for uncertainty we show that a high trade cost candidate, that guarantees the initial symmetric equilibrium, may defeat the core-periphery equilibrium candidate. The reason is that a coalition of risk-averse immobile factors of production votes for status quo due to uncertainty about which region that will attract industrial activity.
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Paper provided by Lund University, Department of Economics in its series Working Papers with number
2005:32.
Length: 37 pages Date of creation: 31 May 2005 Date of revision: Handle: RePEc:hhs:lunewp:2005_032
Note: This paper has been replaced by WP 2006:22 "Resisting Economic Integration when Industry Location is Uncertain" Contact details of provider: Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund,Sweden Phone: +46 +46 222 0000 Fax: +46 +46 2224613 Web page: http://www.nek.lu.se/ More information through EDIRC
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