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The Emergence of Optimal Agglomeration in Dynamic Economics

William Brock and Anastasios Xepapadeas ()

No 1011, DEOS Working Papers from Athens University of Economics and Business

Abstract: We analyze endogenous pattern formation resulting from forward-looking optimizing behavior of economic agents in the presence of spatial spillovers modelled by continuous kernels. We use Fourier methods to identify nec- essary and su�¢ cient conditions for the emergence of optimal agglomeration through an optimal spillover induced instability of a spatially homogeneous steady state. We apply our methods to study the emergence of optimal ag- glomeration for a rational expectations equilibrium and an optimal growth model. We believe that our analytical methods can be used to systematically study optimal agglomeration and clustering in dynamic economics.

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