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Agglomeration under Forward-Looking Expectations: Potentials and Global Stability

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  • Oyama, Daisuke

Abstract

This paper considers a class of migration dynamics with forward-looking agents in a multi-country solvable variant of the core-periphery model of Krugman (Journal of Political Economy 99 (1991)). We find that, under a symmetric externality assumption, our static model admits a potential function, which allows us to identify a stationary state that is uniquely absorbing and globally accessible under the perfect foresight dynamics whenever the degree of friction in relocation decisions is sufficiently small. In particular, when trade barriers are low enough, full agglomeration in the country with the highest barrier is the unique stable state for small frictions. New aspects in trade and tax policy that arise due to forward-looking behavior are discussed.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 15239.

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Date of creation: 28 Mar 2006
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Handle: RePEc:pra:mprapa:15239

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Keywords: economic geography; agglomeration; perfect foresight dynamics; history versus expectations; stability; potential game; equilibrium selection;

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Citations

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Cited by:
  1. Anna Agliari & Pasquale Commendatore & Ilaria Foroni & Ingrid Kubin, 2014. "Expectations and industry location: a discrete time dynamical analysis," Decisions in Economics and Finance, Springer, Springer, vol. 37(1), pages 3-26, April.
  2. Fujishima, Shota, 2013. "Evolutionary implementation of optimal city size distributions," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 43(2), pages 404-410.
  3. Akamatsu, Takashi & Takayama, Yuki & Ikeda, Kiyohiro, 2009. "Spatial Discounting, Fourier, and Racetrack Economy: A Recipe for the Analysis of Spatial Agglomeration Models," MPRA Paper 21738, University Library of Munich, Germany, revised 25 Dec 2009.
  4. Akamatsu, Takashi & Fujishima, Shota & Takayama, Yuki, 2014. "On Stable Equilibria in Discrete-Space Social Interaction Models," MPRA Paper 55938, University Library of Munich, Germany.
  5. Oyama, Daisuke, 2006. "History versus Expectations in Economic Geography Reconsidered," MPRA Paper 9287, University Library of Munich, Germany.
  6. Ikeda, Kiyohiro & Akamatsu, Takashi & Kono, Tatsuhito, 2012. "Spatial period-doubling agglomeration of a core–periphery model with a system of cities," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 36(5), pages 754-778.
  7. Oyama, Daisuke & Tercieux, Olivier, 2004. "Iterated Potential and Robustness of Equilibria," MPRA Paper 1599, University Library of Munich, Germany.
  8. Akamatsu, Takashi & Takayama, Yuki, 2009. "A Simplified Approach to Analyzing Multi-regional Core-Periphery Models," MPRA Paper 21739, University Library of Munich, Germany, revised 29 Oct 2009.
  9. Daisuke Oyama & Satoru Takahashi & Josef Hofbauer, 2011. "Perfect foresight dynamics in binary supermodular games," International Journal of Economic Theory, The International Society for Economic Theory, The International Society for Economic Theory, vol. 7(3), pages 251-267, 09.
  10. Mossay, Pascal, 2013. "A theory of rational spatial agglomerations," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 43(2), pages 385-394.

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