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Industry location and welfare when transport costs are endogenous

Author

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  • Kristian Behrens

    (CORE, Centre For Operation Research And Econometrics - UCL - Université Catholique de Louvain, UQAM - Université du Québec à Montréal , Centre interuniversitaire sur le risque, les politiques économiques et l'emploi (CIRPÉE) - HEC Montréal - HEC Montréal)

  • Carl Gaigné

    () (UMR 1302 Structures et Marchés Agricoles, Ressources et Territoires - INRA - Institut National de la Recherche Agronomique - AGROCAMPUS OUEST - SMART - Structures et Marchés Agricoles, Ressources et Territoires)

  • Jacques-François Thisse

    (CORE, Centre For Operation Research And Econometrics - UCL - Université Catholique de Louvain, Centre for Economic Policy Research, PSE - Paris School of Economics)

Abstract

Although transport costs are a key-ingredient of New Economic Geography, the transport sector is usually abstracted away from the analysis. Put differently, freight rates are taken as parametric and are not set by the market. This paper studies the relationships between transport costs, industry location, and welfare when freight rates are set by profit-maximizing carriers. We show that the demand for transport services becomes less elastic as the degree of spatial agglomeration rises, which increases carriers' market power and allows them to charge higher markups. Once it is recognized that firms and consumers are free to relocate in response to changes in transport costs, an increasing number of carriers, falling fixed or marginal costs in transportation, or both, trigger a gradual agglomeration of industry. In the long run, this leads to consumer welfare losses (and to aggregate welfare losses under free entry), with more inequality across agents living in different regions.

Suggested Citation

  • Kristian Behrens & Carl Gaigné & Jacques-François Thisse, 2012. "Industry location and welfare when transport costs are endogenous," Post-Print hal-01208822, HAL.
  • Handle: RePEc:hal:journl:hal-01208822
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-01208822
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    References listed on IDEAS

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    Cited by:

    1. Jacques-François Thisse, 2010. "Toward A Unified Theory Of Economic Geography And Urban Economics," Journal of Regional Science, Wiley Blackwell, vol. 50(1), pages 281-296.
    2. Zeng, Dao-Zhi & Zhao, Laixun, 2010. "Globalization, interregional and international inequalities," Journal of Urban Economics, Elsevier, vol. 67(3), pages 352-361, May.
    3. ISHIKAWA, Jota & TARUI, Norio, 2017. "Backfiring with Backhaul Problems: Trade and Industrial Policies with Endogenous Transport Costs," Discussion paper series HIAS-E-57, Hitotsubashi Institute for Advanced Study, Hitotsubashi University.
    4. Stéphane De Cara & Anne Fournier & Carl Gaigné, 2011. "Feeding the cities and greenhouse gas emissions: a new economic geography approach," Working Papers 1109, Chaire Economie du climat.
    5. Bosker, Maarten & Buringh, Eltjo, 2018. "Ice(berg) transport costs," CEPR Discussion Papers 12660, C.E.P.R. Discussion Papers.
    6. Miren Lafourcade & Jacques-François Thisse, 2011. "New Economic Geography: The Role of Transport Costs," Chapters,in: A Handbook of Transport Economics, chapter 4 Edward Elgar Publishing.
    7. Behrens, Kristian & Picard, Pierre M., 2011. "Transportation, freight rates, and economic geography," Journal of International Economics, Elsevier, vol. 85(2), pages 280-291.
    8. Demirel, Erhan & Ommeren, Jos van & Rietveld, Piet, 2010. "A matching model for the backhaul problem," Transportation Research Part B: Methodological, Elsevier, vol. 44(4), pages 549-561, May.
    9. repec:spr:lsprsc:v:10:y:2017:i:3:d:10.1007_s12076-017-0187-9 is not listed on IDEAS
    10. Kristian Behrens & Frédéric Robert-Nicoud, 2009. "Krugman's "Papers in Regional Science": The 100 dollar bill on the sidewalk is gone and the 2008 Nobel Prize well-deserved," Papers in Regional Science, Wiley Blackwell, vol. 88(2), pages 467-489, June.
    11. Xu, Hangtian & Nakajima, Kentaro, 2013. "Highways and Development in the Peripheral Regions of China," PRIMCED Discussion Paper Series 33, Institute of Economic Research, Hitotsubashi University.
    12. Takauchi, Kazuhiro, 2015. "Strategic export policy, monopoly carrier, and product differentiation," MPRA Paper 66003, University Library of Munich, Germany.
    13. repec:eee:inecon:v:111:y:2018:i:c:p:81-98 is not listed on IDEAS
    14. Gokan, Toshitaka, 2013. "The location of manufacturing firms and imperfect information in transport market," IDE Discussion Papers 398, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    15. Fabien CANDAU & Florent DEISTING & Julie SCHLICK, 2016. "How Income and Crowding Eects inuence the World Market for French Wines," Working Papers 2015-2016_8, CATT - UPPA - Université de Pau et des Pays de l'Adour, revised Mar 2016.
    16. Tsubota, Kenmei, 2015. "Agglomeration and directional imbalance of freight rates : the role of density economies in the transport sector," IDE Discussion Papers 488, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    17. Takauchi, Kazuhiro, 2015. "Transport efficiency, downstream R&D, and spillovers," MPRA Paper 68479, University Library of Munich, Germany.
    18. Kiyoyasu Tanaka & Kenmei Tsubota, 2017. "Directional imbalance in freight rates: evidence from Japanese inter-prefectural data," Journal of Economic Geography, Oxford University Press, vol. 17(1), pages 217-232.
    19. ISHIKAWA, Jota & TARUI, Nori, 2015. "Backfiring with backhaul problems: Trade and Industrial Policies with Endogenous Transport Costs," Discussion paper series HIAS-E-12, Hitotsubashi Institute for Advanced Study, Hitotsubashi University.
    20. Meunier, David & Quinet, Emile, 2012. "Applications of transport economics and imperfect competition," Research in Transportation Economics, Elsevier, vol. 36(1), pages 19-29.
    21. Kazuhiro Takauchi & Tomomichi Mizuno, 2017. "Solving a hold-up problem may harm all firms: downstream R&D and transport-price contracts," Discussion Papers 1707, Graduate School of Economics, Kobe University.
    22. Masafumi Tsubuku, 2016. "Endogenous transport costs and firm agglomeration in new trade theory," Papers in Regional Science, Wiley Blackwell, vol. 95(2), pages 353-362, June.
    23. Kenzo Abe & Keisuke Hattori & Yoshitaka Kawagoshi, 2014. "Trade Liberalization and Environmental Regulation on International Transportation," The Japanese Economic Review, Japanese Economic Association, vol. 65(4), pages 468-482, December.
    24. repec:bla:worlde:v:40:y:2017:i:5:p:963-977 is not listed on IDEAS
    25. Armando J. Garcia Pires & José Pedro Pontes, 2013. "Spatial Scope Of A Modern Transport Technology," Journal of Regional Science, Wiley Blackwell, vol. 53(4), pages 712-723, October.

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