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Explaining the Size Distribution of Cities: X-treme Economies

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  • Berliant, Marcus
  • Watanabe, Hiroki

Abstract

The methodology used by theories to explain the size distribution of cities takes an empirical fact and works backward to first obtain a reduced form of a model, then pushes this reduced form back to assumptions on primitives. The induced 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. Even aggregate shocks are insufficent to generate consumer movement, since consumers can borrow and save. We propose an alternative class of models, involving extreme risk against which consumers will not insure. Instead, they will move.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 7090.

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Date of creation: 09 Feb 2008
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Handle: RePEc:pra:mprapa:7090

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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. Esteban Rossi-Hansberg & Mark L.J. Wright, 2005. "Urban Structure and Growth," NBER Working Papers 11262, National Bureau of Economic Research, Inc.
  2. Behrens, Kristian & Duranton, Gilles & Robert-Nicoud, Frédéric, 2010. "Productive cities: Sorting, selection and agglomeration," CEPR Discussion Papers 7922, C.E.P.R. Discussion Papers.
  3. 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.
  4. Gabaix, Xavier & Ioannides, Yannis M., 2004. "The evolution of city size distributions," Handbook of Regional and Urban Economics, in: J. V. Henderson & J. F. Thisse (ed.), Handbook of Regional and Urban Economics, edition 1, volume 4, chapter 53, pages 2341-2378 Elsevier.
  5. Berliant, Marcus & Kung, Fan-chin, 2009. "Can information asymmetry cause agglomeration?," MPRA Paper 13085, University Library of Munich, Germany.
  6. Berliant, Marcus & Kung, Fan-chin, 2010. "Can Information Asymmetry Cause Stratification?," MPRA Paper 21395, University Library of Munich, Germany.
  7. Xavier Gabaix, 2005. "The Granular Origins of Aggregate Fluctuations," 2005 Meeting Papers 470, Society for Economic Dynamics.
  8. Jan Eeckhout, 2004. "Gibrat's Law for (All) Cities," American Economic Review, American Economic Association, vol. 94(5), pages 1429-1451, December.
  9. 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.
  10. 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.
  11. 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.
  12. Xavier Gabaix, 1999. "Zipf'S Law For Cities: An Explanation," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 739-767, August.
  13. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September.
  14. 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.
  15. 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. Berliant, Marcus & Watanabe, Hiroki, 2011. "A scale-free transportation network explains the city-size distribution," MPRA Paper 34820, University Library of Munich, Germany.
  2. Gilles Duranton & Diego Puga, 2013. "The Growth Of Cities," Working Papers wp2013_1308, CEMFI.
  3. 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.
  4. 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.
  5. 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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