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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 7587.

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Date of creation: 09 Mar 2008
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Handle: RePEc:pra:mprapa:7587

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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, Elsevier, vol. 36(4), pages 542-563, July.
  2. Xavier Gabaix & Yannis M. Ioannides, 2003. "The Evolution of City Size Distributions," Discussion Papers Series, Department of Economics, Tufts University, Department of Economics, Tufts University 0310, Department of Economics, Tufts University.
  3. Berliant, Marcus & Kung, Fan-chin, 2009. "Can information asymmetry cause agglomeration?," MPRA Paper 17567, University Library of Munich, Germany.
  4. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, Econometric Society, vol. 70(5), pages 1741-1779, September.
  5. Xavier Gabaix, 2011. "The Granular Origins of Aggregate Fluctuations," Econometrica, Econometric Society, Econometric Society, vol. 79(3), pages 733-772, 05.
  6. Esteban Rossi-Hansberg & Mark L. J. Wright, 2003. "Urban structure and growth," Discussion Paper / Institute for Empirical Macroeconomics, Federal Reserve Bank of Minneapolis 141, Federal Reserve Bank of Minneapolis.
  7. Fujita, Masahisa & Mori, Tomoya, 1997. "Structural stability and evolution of urban systems," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 27(4-5), pages 399-442, August.
  8. Kristian Behrens & Gilles Duranton & Fr�d�ric Robert-Nicoud, 2014. "Productive Cities: Sorting, Selection, and Agglomeration," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 122(3), pages 507 - 553.
  9. Gilles Duranton, 2007. "Urban Evolutions: The Fast, the Slow, and the Still," American Economic Review, American Economic Association, American Economic Association, vol. 97(1), pages 197-221, March.
  10. Jan Eeckhout, 2004. "Gibrat's Law for (All) Cities," American Economic Review, American Economic Association, American Economic Association, vol. 94(5), pages 1429-1451, December.
  11. Berliant, Marcus & Kung, Fan-chin, 2010. "Can information asymmetry cause stratification?," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 40(4), pages 196-209, July.
  12. Xavier Gabaix, 1999. "Zipf's Law and the Growth of Cities," American Economic Review, American Economic Association, American Economic Association, vol. 89(2), pages 129-132, May.
  13. 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, Springer, vol. 41(2), pages 255-258, 09.
  14. Xavier Gabaix, 1999. "Zipf'S Law For Cities: An Explanation," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 114(3), pages 739-767, August.
  15. Starrett, David, 1978. "Market allocations of location choice in a model with free mobility," Journal of Economic Theory, Elsevier, Elsevier, vol. 17(1), pages 21-37, February.
  16. Jan Eeckhout, 2009. "Gibrat's Law for (All) Cities: Reply," American Economic Review, American Economic Association, American Economic Association, vol. 99(4), pages 1676-83, September.
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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
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
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Cited by:
  1. Wen-Tai Hsu & Thomas J. Holmes, 2009. "Optimal City Hierarchy: A Dynamic Programming Approach to Central Place Theory," 2009 Meeting Papers, Society for Economic Dynamics 342, Society for Economic Dynamics.
  2. Duranton, Gilles & Puga, Diego, 2014. "The Growth of Cities," Handbook of Economic Growth, Elsevier, in: Handbook of Economic Growth, edition 1, volume 2, chapter 5, pages 781-853 Elsevier.
  3. 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.
  4. Marcus Berliant & Hiroki Watanabe, 2012. "A Scale-Free Transportation Network Explains the City-Size Distribution," ERSA conference papers ersa12p601, European Regional Science Association.
  5. Tomoya Mori & Tony E. Smith, 2009. "A Reconsideration of the NAS Rule from an Industrial Agglomeration Perspective," KIER Working Papers, Kyoto University, Institute of Economic Research 669, Kyoto University, Institute of Economic Research.
  6. Kim, Ho Yeon, 2012. "Shrinking population and the urban hierarchy," IDE Discussion Papers, Institute of Developing Economies, Japan External Trade Organization(JETRO) 360, Institute of Developing Economies, Japan External Trade Organization(JETRO).

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  1. Economic Logic blog

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