The goal of this paper is theoretical analysis of the complex process of agglomeration of firms in space when cities are also competing for them. Positive spillovers tend firms to locate in the same area, while congestion effects limit this process. Thus, for any given city there exists an optimal number of firms. If there are fewer firms, we face competition under increasing returns to scale, with path dependence effects, described by W.B.Arthur (1994). Hence, if firms are relatively scarce, not all cities would be occupied by firms at optimal level. The problem of a firm is to choose an optimal city expecting rational behaviour of other firms. Such factor as office rent depend on city size, while wage cost and spillover effects depend also on the number of firms there. Firms choose to agglomerate in those cities where after optimal entry their profits will be maximized. Under certain conditions for parameter set, there exists an equilibrium allocation, where all firms are located in the cities with better parameters. Since cities are different, their attractiveness also differ. At present, London is the leader in attractiveness among European cities, while Barcelona, stays at the 7th position (Healey and Baker, 2001). But this situation is unstable and depends on city development. On empirical side, we analyse the potential effect of investment in infrastructure in Barcelona to improve its attractiveness.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by European Regional Science Association in its series ERSA conference papers with number
ersa05p501.
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Abdel-Rahman, Hesham M. & Anas, Alex, 2004.
"Theories of systems of cities,"
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 52, pages 2293-2339
Elsevier.
[Downloadable!] (restricted)
Other versions:
Abdel-Rahman, Hesham M. & Anas, Alex, 2003.
"Theories of system of cities,"
Working Papers
2003-08, University of New Orleans, Department of Economics and Finance.
[Downloadable!]