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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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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 8410.

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Date of creation: 23 Apr 2008
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Handle: RePEc:pra:mprapa:8410

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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. Xavier Gabaix, 2005. "The Granular Origins of Aggregate Fluctuations," 2005 Meeting Papers 470, Society for Economic Dynamics.
  2. Berliant, Marcus & Kung, Fan-chin, 2006. "Can Information Asymmetry Cause Agglomeration?," MPRA Paper 1278, University Library of Munich, Germany, revised 29 Dec 2006.
  3. Esteban Rossi-Hansberg & Mark L. J. Wright, 2007. "Urban Structure and Growth," Review of Economic Studies, Oxford University Press, vol. 74(2), pages 597-624.
  4. 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.
  5. Kristian Behrens & Gilles Duranton & Frédéric Robert-Nicoud, 2013. "Productive cities: Sorting, selection, and agglomeration," Research Papers by the Institute of Economics and Econometrics, Geneva School of Economics and Management, University of Geneva 13111, Institut d'Economie et Econométrie, Université de Genève.
  6. 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.
  7. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September.
  8. 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.
  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. Jan Eeckhout, 2004. "Gibrat's Law for (All) Cities," American Economic Review, American Economic Association, vol. 94(5), pages 1429-1451, December.
  11. 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.
  12. Jan Eeckhout, 2009. "Gibrat's Law for (All) Cities: Reply," American Economic Review, American Economic Association, vol. 99(4), pages 1676-83, September.
  13. Berliant, Marcus & Kung, Fan-chin, 2010. "Can Information Asymmetry Cause Stratification?," MPRA Paper 21395, University Library of Munich, Germany.
  14. Xavier Gabaix, 1999. "Zipf's Law and the Growth of Cities," American Economic Review, American Economic Association, vol. 89(2), pages 129-132, May.
  15. Xavier Gabaix, 1999. "Zipf'S Law For Cities: An Explanation," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 739-767, August.
  16. 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.
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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. 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.
  2. Berliant, Marcus & Watanabe, Hiroki, 2011. "A scale-free transportation network explains the city-size distribution," MPRA Paper 34820, University Library of Munich, Germany.
  3. Duranton, Gilles & Puga, Diego, 2014. "The Growth of Cities," Handbook of Economic Growth, in: Handbook of Economic Growth, edition 1, volume 2, chapter 5, pages 781-853 Elsevier.
  4. Kim, Ho Yeon, 2012. "Shrinking population and the urban hierarchy," IDE Discussion Papers 360, Institute of Developing Economies, Japan External Trade Organization(JETRO).
  5. 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.

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  1. Economic Logic blog

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