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Spatial Externalities and Agglomeration in a Competitive Industry


  • Athanasios Yannacopoulos
  • Anastasios Xepapadeas
  • William Brock


We introduce spatial spillovers as an externality in the production function of competitive firms operating within a finite spatial domain under adjustment costs. Spillovers attenuate with distance and the overall externality could contain positive and negative components with the overall effect being positive. We show that when the spatial externality is not internalized by firms, spatial agglomerations may emerge endogenously in a competitive equilibrium. The result does not depend on increasing returns at the private or the social level and location advantages, but on the complementarity between capital and the spatial externality, existence of positive and negative local spillovers, and relatively large deviations between own and other-locations eff ects on the aggregate externality. No agglomerations emerge at the social optimum when spillovers are internalized and diminishing returns both from the private and the social point of view prevail. Numerical experiments with Cobb-Douglas technology and isoelastic demand confirm our theoretical predictions.

Suggested Citation

  • Athanasios Yannacopoulos & Anastasios Xepapadeas & William Brock, "undated". "Spatial Externalities and Agglomeration in a Competitive Industry," DEOS Working Papers 1336, Athens University of Economics and Business.
  • Handle: RePEc:aue:wpaper:1336

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    Cited by:

    1. Anastasios Xepapadeas & Athanasios Yannacopoulos, 2015. "Spatial Resource Management under Pollution Externalities," DEOS Working Papers 1516, Athens University of Economics and Business.
    2. Xepapadeas, A. & Yannacopoulos, A.N., 2016. "Spatial growth with exogenous saving rates," Journal of Mathematical Economics, Elsevier, vol. 67(C), pages 125-137.
    3. Anastasios Xepapadeas & Athanasios Yannacopoulos & Andreas Ioannidis, 2014. "Spatial Growth: The Distribution of Capital across Locations when Saving Rates are Exogenous," DEOS Working Papers 1412, Athens University of Economics and Business.

    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis


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