21 April 1999 | Gianmarco Ottaviano and Jacques-François Thisse
This paper presents an alternative model of agglomeration and trade that captures the main features of recent economic geography literature while allowing for analytical results through simple algebra. The model is based on a quadratic utility function, which allows for product differentiation and imperfect competition. It differs from existing models in several key respects, including the specification of utility, closed analytical solutions, and the treatment of transportation costs. The model is used to analyze the dynamics of migration in the process of agglomeration, showing that expectations can influence the emergence of economic clusters, particularly for intermediate values of transport costs. The paper also discusses the stability of spatial equilibria and the conditions under which agglomeration occurs. The results suggest that the model can provide new insights into the impact of trade costs on the spatial distribution of economic activities and the role of expectations in the agglomeration process.This paper presents an alternative model of agglomeration and trade that captures the main features of recent economic geography literature while allowing for analytical results through simple algebra. The model is based on a quadratic utility function, which allows for product differentiation and imperfect competition. It differs from existing models in several key respects, including the specification of utility, closed analytical solutions, and the treatment of transportation costs. The model is used to analyze the dynamics of migration in the process of agglomeration, showing that expectations can influence the emergence of economic clusters, particularly for intermediate values of transport costs. The paper also discusses the stability of spatial equilibria and the conditions under which agglomeration occurs. The results suggest that the model can provide new insights into the impact of trade costs on the spatial distribution of economic activities and the role of expectations in the agglomeration process.