On Pitchforks and Tomahawks
18 Pages Posted: 3 Nov 2008
The core-periphery model by Krugman (1991) has two 'dramatic' implications: catastrophic agglomeration and locational hysteresis. We study this seminal model with CES instead of Cobb-Douglas upper tier preferences. This small generalization suffices to change these stark implications. For a wide range of parameters we find that the model exhibits instead a smooth and easily reversible transition from symmetry to agglomeration.
Keywords: core-periphery model, new economic geography, agglomeration, bifurcation pattern
JEL Classification: F12, F15, F22, R12, R50
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