Finding equilibrium: How important is general equilibrium to the results of geographical economics?

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Abstract

This article proposes a version of the Core-Periphery model in which equilibrium is not assumed a priori, but may develop out of the choices of workers and firms. The research presented here finds that the assumption of general equilibrium present in the original model is neither a necessary nor a sufficient condition for systems to adjust to stable Nash Equilibria. This article introduces the idea of leakage to describe the minute inaccuracies in optimization that can cascade into major shifts in outcomes. This leakage plays an increasingly important role when the population is evenly spread among cities. Furthermore, as other assumptions are relaxed the effects of leakage on model stability are multiplied. This finding is of particular interest as the equilibriumbased results of geographical economics are increasingly being applied in policy settings where moderate concentrations of population and heterogeneity are the norm rather than the exception.

Original languageEnglish (US)
Article numberlbq006
Pages (from-to)457-480
Number of pages24
JournalJournal of Economic Geography
Volume11
Issue number3
DOIs
StatePublished - May 1 2011

All Science Journal Classification (ASJC) codes

  • Geography, Planning and Development
  • Economics and Econometrics

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