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Optimal Agglomerations in Dynamic Economics

  • William Brock
  • Anastasios Xepapadeas
  • Athanasios Yannacopoulos

We study rational expectations equilibrium problems and social optimum problems in in nite horizon spatial economies in the context of a Ramsey type capital accumulation problem with geographical spillovers. We identify sufficient local and global conditions for the emergence (or not) of optimal agglomeration, using techniques from monotone operator theory and spectral theory in in nite dimensional Hilbert spaces. We show that agglomerations may emerge, with any type of returns to scale (increasing or decreasing) and with the marginal productivity of private capital increasing or decreasing with respect to the spatial externality. This is a fairly general result indicating the importance of the network structure of the spatial externality relative to the properties of the aggregate production function. Our analytical methods can be used to systematically study optimal potential agglomeration and clustering in dynamic economics.

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Paper provided by Athens University of Economics and Business in its series DEOS Working Papers with number 1403.

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Date of creation: 01 Apr 2014
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Handle: RePEc:aue:wpaper:1403
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