Agglomeration under Forward-Looking Expectations: Potentials and Global Stability

Daisuke Oyama

MPRA Paper from University Library of Munich, Germany

Abstract: This paper considers a class of migration dynamics with forward-looking agents in a multi-country solvable variant of the core-periphery model of Krugman (Journal of Political Economy 99 (1991)). We find that, under a symmetric externality assumption, our static model admits a potential function, which allows us to identify a stationary state that is uniquely absorbing and globally accessible under the perfect foresight dynamics whenever the degree of friction in relocation decisions is sufficiently small. In particular, when trade barriers are low enough, full agglomeration in the country with the highest barrier is the unique stable state for small frictions. New aspects in trade and tax policy that arise due to forward-looking behavior are discussed.

Keywords: economic geography; agglomeration; perfect foresight dynamics; history versus expectations; stability; potential game; equilibrium selection (search for similar items in EconPapers)
JEL-codes: C6 F12 R12 (search for similar items in EconPapers)
Date: 2006-03-28
References: View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Related works:
Journal Article: Agglomeration under forward-looking expectations: Potentials and global stability (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:15239

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