A Synthesis of Footloose-Entrepreneur New Economic Geography Models: When is Agglomeration Smooth and Easily Reversible?

Posted: 7 Jul 2008

See all articles by Michael Pflüger

Michael Pflüger

University of Passau; IZA Institute of Labor Economics; German Institute for Economic Research (DIW Berlin)

Jens Suedekum

Heinrich-Heine-University Duesseldorf, Duesseldorf Institute for Competition Economics (DICE); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); Institute for the Study of Labor (IZA)

Date Written: January 2008

Abstract

Models of the new economic geography share a number of common conclusions, but also exhibit notable differences, in particular with respect to the shape of the location pattern. Some models imply a catastrophic agglomeration process with hysteresis, so that concentration in one region is not easily reversible. Other models suggest that agglomeration may be smooth, easily reversible and not necessarily feature extreme bang-bang outcomes. These differences reflect the fact that new economic geography models have relied heavily on specific functional forms. In this article we approach the properties of a particular class of new economic geography models, the class of footloose entrepreneur models, with a unifying framework based on the indirect utility function of mobile agents. We are able to provide general, yet handy, formula to determine the break point and the bifurcation pattern. An application of this framework allows us to show how specific results in the literature can be reconciled as special cases, so that the origin of their differences can be highlighted.

Keywords: new economic geography, agglomeration, location pattern, bifurcation

JEL Classification: R12, R50, F12, F15, F22

Suggested Citation

Pflüger, Michael and Südekum, Jens, A Synthesis of Footloose-Entrepreneur New Economic Geography Models: When is Agglomeration Smooth and Easily Reversible? (January 2008). Journal of Economic Geography, Vol. 8, Issue 1, pp. 39-54, 2008, Available at SSRN: https://ssrn.com/abstract=1155903 or http://dx.doi.org/10.1093/jeg/lbm046

Michael Pflüger (Contact Author)

University of Passau ( email )

Innstrasse 27
Passau, 94032
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

German Institute for Economic Research (DIW Berlin)

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Berlin, 10117
Germany

Jens Südekum

Heinrich-Heine-University Duesseldorf, Duesseldorf Institute for Competition Economics (DICE) ( email )

Universitaetsstr. 1
Duesseldorf, NRW 40225
Germany

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

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