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The Endogenous Formation of a City: Population Agglomeration and Marketplaces in a Location-Specific Production Economy

  • Marcus Berliant

    (Washington University in St. Louis)

  • Hideo Konishi

    ()

    (Boston College)

Much of the literature on the endogenous generation of a city employs increasing returns to scale in order to obtain agglomeration. In contrast, the model considered here focuses on the role of marketplaces or trading centers in the agglomeration of population as cities. Gains to trade in combination with transportation and marketplace setup costs suffice to endogenously generate a city or cities with one or multiple marketplaces. It is assumed that consumers are fully mobile while production functions are location-specific. The exchange of commodities takes place in competitive markets at the marketplaces, while the number and locations of the marketplaces are determined endogenously using a core concept. Unlike the standard literature of urban economics, our model can deal with differences in geography by letting the setup costs of marketplaces and the transportation system depend on location. After showing that an equilibrium exists and that equilibrium allocations are the same as core allocations, we investigate the equilibrium number and locations of marketplaces, the population distribution, and land prices. In contrast with earlier literature, the results are general in the sense that specific functional forms are not needed to obtain existence of equilibrium, equilibria are first best, and equilibria are locally unique (in our examples).

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Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 451.

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Length: 34 pages
Date of creation: 01 Jan 2000
Date of revision:
Publication status: published, Regional Science and Urban Economics 30, 289-324 (2000)
Handle: RePEc:boc:bocoec:451
Contact details of provider: Postal: Boston College, 140 Commonwealth Avenue, Chestnut Hill MA 02467 USA
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