Determining the Level of Transportation Costs in the Core-Periphery Model: a Majority Voting Approach
We analyse the political determination of transportation costs in an analytically solvable core-periphery model. In a benchmark case with certainty about where agglomeration takes place, we find that a majority of voters prefers low trade costs and the resulting equilibrium is an industrialised core and a de-industrialised periphery. Allowing for uncertainty we show that a high trade cost candidate, that guarantees the initial symmetric equilibrium, may defeat the core-periphery equilibrium candidate. The reason is that a coalition of risk-averse immobile factors of production votes for status quo due to uncertainty about which region that will attract industrial activity.
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|Date of creation:||31 May 2005|
|Date of revision:|
|Note:||This paper has been replaced by WP 2006:22 "Resisting Economic Integration when Industry Location is Uncertain"|
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