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Explaining the Size Distribution of Cities: X-treme Economies

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  • Berliant, Marcus
  • Watanabe, Hiroki

Abstract

We criticize the theories used to explain the size distribution of cities. They take an empirical fact and work backward to obtain assumptions on primitives. The induced theoretical assumptions on consumer behavior, particularly about their inability to insure against the city-level productivity shocks in the model, are untenable. With either self insurance or insurance markets, and either an arbitrarily small cost of moving or the assumption that consumers do not perfectly observe the shocks to firms' technologies, the agents will never move. Even without these frictions, our analysis yields another equilibrium with insurance where consumers never move. Thus, insurance is a substitute for movement. We propose an alternative class of models, involving extreme risk against which consumers will not insure. Instead, they will move, generating a Fréchet distribution of city sizes that is empirically competitive with other models.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 34747.

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Date of creation: 15 Nov 2011
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Handle: RePEc:pra:mprapa:34747

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Keywords: Zipf's Law; Gibrat's Law; Size Distribution of Cities; Extreme Value Theory;

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References

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  1. Duranton, Gilles, 2006. "Some foundations for Zipf's law: Product proliferation and local spillovers," Regional Science and Urban Economics, Elsevier, vol. 36(4), pages 542-563, July.
  2. Berliant, Marcus & Kung, Fan-chin, 2010. "Can Information Asymmetry Cause Stratification?," MPRA Paper 21395, University Library of Munich, Germany.
  3. Xavier Gabaix, 1999. "Zipf'S Law For Cities: An Explanation," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 739-767, August.
  4. M. Goldstein & S. Morris & G. Yen, 2004. "Problems with fitting to the power-law distribution," The European Physical Journal B - Condensed Matter and Complex Systems, Springer, vol. 41(2), pages 255-258, 09.
  5. Kristian Behrens & Gilles Duranton & Fr�d�ric Robert-Nicoud, 2014. "Productive Cities: Sorting, Selection, and Agglomeration," Journal of Political Economy, University of Chicago Press, vol. 122(3), pages 507 - 553.
  6. Berliant, Marcus & Kung, Fan-chin, 2009. "Can information asymmetry cause agglomeration?," MPRA Paper 17567, University Library of Munich, Germany.
  7. Gilles Duranton, 2007. "Urban Evolutions: The Fast, the Slow, and the Still," American Economic Review, American Economic Association, vol. 97(1), pages 197-221, March.
  8. Xavier Gabaix & Yannis M. Ioannides, 2003. "The Evolution of City Size Distributions," Discussion Papers Series, Department of Economics, Tufts University 0310, Department of Economics, Tufts University.
  9. Starrett, David, 1978. "Market allocations of location choice in a model with free mobility," Journal of Economic Theory, Elsevier, vol. 17(1), pages 21-37, February.
  10. Fujita, Masahisa & Mori, Tomoya, 1997. "Structural stability and evolution of urban systems," Regional Science and Urban Economics, Elsevier, vol. 27(4-5), pages 399-442, August.
  11. Jan Eeckhout, 2009. "Gibrat's Law for (All) Cities: Reply," American Economic Review, American Economic Association, vol. 99(4), pages 1676-83, September.
  12. Mark Wright & Esteban Rossi-Hansberg, 2004. "Urban Structure and Growth," 2004 Meeting Papers 33, Society for Economic Dynamics.
  13. Jan Eeckhout, 2004. "Gibrat's Law for (All) Cities," American Economic Review, American Economic Association, vol. 94(5), pages 1429-1451, December.
  14. Xavier Gabaix, 2011. "The Granular Origins of Aggregate Fluctuations," Econometrica, Econometric Society, vol. 79(3), pages 733-772, 05.
  15. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September.
  16. Xavier Gabaix, 1999. "Zipf's Law and the Growth of Cities," American Economic Review, American Economic Association, vol. 89(2), pages 129-132, May.
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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. On the size of cities
    by Economic Logician in Economic Logic on 2011-09-28 14:08:00
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Cited by:
  1. Gilles Duranton & Diego Puga, 2013. "The Growth Of Cities," Working Papers wp2013_1308, CEMFI.
  2. Tomoya Mori & Tony E. Smith, 2009. "A Reconsideration of the NAS Rule from an Industrial Agglomeration Perspective," KIER Working Papers 669, Kyoto University, Institute of Economic Research.
  3. Marcus Berliant & Hiroki Watanabe, 2012. "A Scale-Free Transportation Network Explains the City-Size Distribution," ERSA conference papers ersa12p601, European Regional Science Association.
  4. Ho Yeon KIM & Petra de Jong & Jan Rouwendal & Aleid Brouwer, 2012. "Shrinking population and the urban hierarchy
    [Housing preferences and attribute importance among Dutch older adults: a conjoint choice experiment]
    ," ERSA conference papers ersa12p350, European Regional Science Association.
  5. Wen-Tai Hsu & Thomas J. Holmes, 2009. "Optimal City Hierarchy: A Dynamic Programming Approach to Central Place Theory," 2009 Meeting Papers 342, Society for Economic Dynamics.
  6. Kim, Ho Yeon, 2012. "Shrinking population and the urban hierarchy," IDE Discussion Papers 360, Institute of Developing Economies, Japan External Trade Organization(JETRO).

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