Agglomeration and the extent of the market: Theory and experiment on spatially coordinated exchange
Journal of Economic Behavior & Organization, 2021, vol. 190, issue C, 838-850
Cities and marketplaces are central to economic development, but we know little about the mechanisms that cause such agglomerations to form. I theorize that evolutionary forces select for agglomerations when individuals desire to spatially coordinate exchange in complex environments. To test this idea, I perform a laboratory experiment where geographically dispersed individuals bring different goods to a location for trade. Consistent with the theory, I find that individuals spontaneously coalesce to reap the gains from exchange and there is more agglomeration in economies with a larger variety of goods. I also find that agglomerations re-emerge at the same locations after shocks, being land-tied reduces agglomeration but magnifies the effect of variety, individual location choices aggregate to create a Zipf population distribution, and individuals earn more in agglomerations.
Keywords: Spatial coordination; Agglomeration; Pure-exchange (search for similar items in EconPapers)
JEL-codes: C92 F19 R12 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:190:y:2021:i:c:p:838-850
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