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Explaining the size distribution of cities: X-treme economies

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  • Berliant, Marcus
  • Watanabe, Hiroki

Abstract

The methodology used by theories to explain the size distribution of cities is contrived in that it takes an empirical fact and works backward to first obtain a reduced form of a model, then pushes this reduced form back to assumptions on primitives. The induced assumptions on consumer behavior, particularly about their ability to insure against the city-level productivity shocks in the model, are untenable. With either self insurance or insurance markets, and either an arbitrarily small cost of moving or the assumption that consumers do not perfectly observe the shocks to firms' technologies, the agents will never move. Equilibrium implies a uniform distribution of agents. Even without these frictions, our analysis yields another equilibrium with insurance that gives exactly the same utility level to consumers as the equilibrium studied in the literature, but where consumers never move. Thus, insurance is a substitute for movement. Even aggregate shocks are insufficent to generate consumer movement, since consumers can borrow and save. We propose an alternative class of models, involving extreme risk against which consumers will not insure. Instead, they will move.

Suggested Citation

  • Berliant, Marcus & Watanabe, Hiroki, 2007. "Explaining the size distribution of cities: X-treme economies," MPRA Paper 5428, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:5428
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    References listed on IDEAS

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    4. Berliant, Marcus & Kung, Fan-chin, 2006. "Can Information Asymmetry Cause Agglomeration?," MPRA Paper 1278, University Library of Munich, Germany, revised 29 Dec 2006.
    5. Kristian Behrens & Gilles Duranton & Frédéric Robert-Nicoud, 2014. "Productive Cities: Sorting, Selection, and Agglomeration," Journal of Political Economy, University of Chicago Press, vol. 122(3), pages 507-553.
    6. Starrett, David, 1978. "Market allocations of location choice in a model with free mobility," Journal of Economic Theory, Elsevier, vol. 17(1), pages 21-37, February.
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    Citations

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    Cited by:

    1. Berliant, Marcus & Watanabe, Hiroki, 2011. "A scale-free transportation network explains the city-size distribution," MPRA Paper 34820, University Library of Munich, Germany.
    2. OSHIRO Jun & SATO Yasuhiro, 2016. "Industrial Structure in Urban Accounting," Discussion papers 16105, Research Institute of Economy, Trade and Industry (RIETI).
    3. Ho Yeon KIM & Petra de Jong & Jan Rouwendal & Aleid Brouwer, 2012. "Shrinking population and the urban hierarchy
      [Housing preferences and attribute importance among Dutch older adults: a conjoint choice experiment]
      ," ERSA conference papers ersa12p350, European Regional Science Association.
    4. Duranton, Gilles & Puga, Diego, 2014. "The Growth of Cities," Handbook of Economic Growth,in: Handbook of Economic Growth, edition 1, volume 2, chapter 5, pages 781-853 Elsevier.
    5. Kim, Ho Yeon, 2012. "Shrinking population and the urban hierarchy," IDE Discussion Papers 360, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    6. Wen-Tai Hsu & Thomas J. Holmes, 2009. "Optimal City Hierarchy: A Dynamic Programming Approach to Central Place Theory," 2009 Meeting Papers 342, Society for Economic Dynamics.
    7. Ramos, Arturo & Sanz-Gracia, Fernando, 2015. "US city size distribution revisited: Theory and empirical evidence," MPRA Paper 64051, University Library of Munich, Germany.
    8. Tomoya Mori & Tony E. Smith, 2009. "A Reconsideration of the NAS Rule from an Industrial Agglomeration Perspective," KIER Working Papers 669, Kyoto University, Institute of Economic Research.

    More about this item

    Keywords

    Zipf's Law; Gibrat's Law; Size Distribution of Cities; Extreme Value Theory;

    JEL classification:

    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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