The "Information Highway" and the Location of Economic Activity
This paper studies possible consequences from building an "information highway" for the location of firms and households in the context of a two-region, three-good model of economic geography. The advancements in information and communication technology are identified with a decrease in transportation costs for intermediate services on the one hand and with a decrease in the costs of teleworking for households on the other hand. The stability of three situations is investigated: all production in the city; manufacturing in the city and services in the rural region; manufacturing in the rural region and services in the city (service city). While the first situation can constitute a stable equilibrium, the second cannot and the third is only feasible if additional locational externalities exist for services in the city. Even then the service city can become a "virtual city" if costs of teleworking decrease enough to encourage households to move to the rural region and telework.
References listed on IDEAS
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