Understanding Spatial Agglomeration: Increasing Returns, Land, and Transportation Costs

Hans Koster and Jacques-François Thisse ()
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Jacques-François Thisse: Cent. Oper. Res. Econom. (CORE), UC Louvain, Louvain-la-Neuve, Belgium

Annual Review of Economics, 2024, vol. 16, issue 1, 55-78

Abstract: Economic activities are concentrated on a small share of inhabitable land. In our view, this agglomeration is the outcome of a trade-off between increasing returns and transportation costs, which capitalizes into land rents. Our second baseline idea is that Tiebout-like sorting provides a general framework to handle a large array of problems in spatial economics. Cities have high housing prices because they are productive and offer high levels of amenities and public goods. Both production and amenity effects capitalize in the land rent at a particular location. Through the process of bidding for land, spatial sorting is the involuntary consequence of a myriad of individual decisions made by agents who pursue their own interests.

Keywords: new economic geography; land; transportation; increasing returns; cities; spatial sorting (search for similar items in EconPapers)
JEL-codes: R10 R20 R30 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (1)

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DOI: 10.1146/annurev-economics-020723-041113

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