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Self-Defeating Regional Concentration

  • Kiminori Matsuyama
  • Takaaki Takahashi

We present a two-region economy model, in which inefficienct concentration may occur. Individuals in this economy, even though they prefer evenly distributed across the two regions, concentrate into one region in their pursuit of better life. We characterize the conditions for such self-defeating concentration. What is crucial is the coordination failure between the entry decision of service firms and the migration decision of individuals, generated by the incompleteness of markets, or the lack of opportunity to signal demand and supply for potential services. The argument does not rely on price distortions, congestion externalities, or myopia in migration decisions.

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File URL: http://www.kellogg.northwestern.edu/research/math/papers/1086.pdf
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Paper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number 1086.

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Date of creation: May 1993
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Handle: RePEc:nwu:cmsems:1086
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  1. Krugman, Paul, 1991. "History versus Expectations," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 651-67, May.
  2. Matsuyama, Kiminori, 1992. "The market size, entrepreneurship, and the big push," Journal of the Japanese and International Economies, Elsevier, vol. 6(4), pages 347-364, December.
  3. Edward L. Glaeser & Hedi D. Kallal & Jose A. Scheinkman & Andrei Shleifer, 1991. "Growth in Cities," NBER Working Papers 3787, National Bureau of Economic Research, Inc.
    • Glaeser, Edward Ludwig & Kallal, Hedi D. & Scheinkman, Jose A. & Shleifer, Andrei, 1992. "Growth in Cities," Scholarly Articles 3451309, Harvard University Department of Economics.
  4. Hart, Oliver D., 1980. "Perfect competition and optimal product differentiation," Journal of Economic Theory, Elsevier, vol. 22(2), pages 279-312, April.
  5. Krugman, Paul, 1991. "History and Industry Location: The Case of the Manufacturing Belt," American Economic Review, American Economic Association, vol. 81(2), pages 80-83, May.
  6. Howitt, Peter & McAfee, R Preston, 1988. "Stability of Equilibria with Externalities," The Quarterly Journal of Economics, MIT Press, vol. 103(2), pages 261-77, May.
  7. Barro, R.J. & Sala-I-Martin, X., 1991. "Convergence Across States and Regions," Papers 629, Yale - Economic Growth Center.
  8. Teresa Garcia-Milà & Therese J. McGuire, 1992. "Industrial mix as a factor in the growth and variability of States' economies," Economics Working Papers 9, Department of Economics and Business, Universitat Pompeu Fabra.
  9. Moore, Bartholomew J, 1993. "Least-Squares Learning and the Stability of Equilibria with Externalities," Review of Economic Studies, Wiley Blackwell, vol. 60(1), pages 197-208, January.
  10. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-99, June.
  11. Kiminori Matsuyama, 1990. "Increasing Returns, Industrialization and Indeterminacy of Equilibrium," Discussion Papers 878, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  12. Olivier Jean Blanchard & Lawrence F. Katz, 1992. "Regional Evolutions," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(1), pages 1-76.
  13. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  14. Matsuyama, Kiminori, 1992. "A Simple Model of Sectoral Adjustment," Review of Economic Studies, Wiley Blackwell, vol. 59(2), pages 375-88, April.
  15. Novshek, William & Sonnenschein, Hugo, 1978. "Cournot and Walras equilibrium," Journal of Economic Theory, Elsevier, vol. 19(2), pages 223-266, December.
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