Explaining the size distribution of cities: x-treme economies

Marcus Berliant and Axel Watanabe

MPRA Paper from University Library of Munich, Germany

Abstract: We criticize the theories used to explain the size distribution of cities. They take an empirical fact and work backward to obtain assumptions on primitives. The induced theoretical assumptions on consumer behavior, particularly about their inability 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. Even without these frictions, our analysis yields another equilibrium with insurance where consumers never move. Thus, insurance is a substitute for movement. We propose an alternative class of models, involving extreme risk against which consumers will not insure. Instead, they will move, generating a Fréchet distribution of city sizes that is empirically competitive with other models.

Keywords: Zipf's Law; Gibrat's Law; Size Distribution of Cities; Extreme Value Theory (search for similar items in EconPapers)
JEL-codes: R12 (search for similar items in EconPapers)
Date: 2009-02-27
New Economics Papers: this item is included in nep-geo and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Related works:
Journal Article: Explaining the size distribution of cities: Extreme economies (2015)
Working Paper: Explaining the size distribution of cities: x-treme economies (2011)
Working Paper: Explaining the Size Distribution of Cities: X-treme Economies (2011)
Working Paper: Explaining the size distribution of cities: x-treme economies (2009)
Working Paper: Explaining the size distribution of cities: x-treme economies (2009)
Working Paper: Explaining the size distribution of cities: x-treme economies (2009)
Working Paper: Explaining the Size Distribution of Cities: X-treme Economies (2008)
Working Paper: Explaining the size distribution of cities: x-treme economies (2008)
Working Paper: Explaining the size distribution of cities: x-treme economies (2008)
Working Paper: Explaining the size distribution of cities: X-treme economies (2007)
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