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Journal of Economic Geography Advance Access originally published online on December 4, 2007
Journal of Economic Geography 2008 8(1):39-54; doi:10.1093/jeg/lbm046
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© The Author (2007). Published by Oxford University Press. All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org

A synthesis of footloose-entrepreneur new economic geography models: when is agglomeration smooth and easily reversible?

Michael Pflüger* and Jens Südekum{dagger}

*Department of Economics, University of Passau, DIW Berlin and IZA, Innstrasse 27, 94032 Passau, Germany. email < michael.pflueger{at}uni-passau.de>

{dagger}Corresponding author: University of Duisburg-Essen, Mercator School of Management, Lotharstraße 65, 47057 Duisburg, Germany. email < jens.suedekum{at}uni-due.de>

JEL classifications: R12, R50, F12, F15, F22

Models of the new economic geography share a number of common conclusions, but also exhibit notable differences, in particular with respect to the shape of the location pattern. Some models imply a catastrophic agglomeration process with hysteresis, so that concentration in one region is not easily reversible. Other models suggest that agglomeration may be smooth, easily reversible and not necessarily feature extreme ‘bang-bang’ outcomes. These differences reflect the fact that new economic geography models have relied heavily on specific functional forms. In this article we approach the properties of a particular class of new economic geography models, the class of ‘footloose entrepreneur models’, with a unifying framework based on the indirect utility function of mobile agents. We are able to provide general, yet handy, formulae to determine the break point and the bifurcation pattern. An application of this framework allows us to show how specific results in the literature can be reconciled as special cases, so that the origin of their differences can be highlighted.

Keywords: new economic geography, agglomeration, location pattern, bifurcation
Date submitted: 30 August 2007     Date accepted: 5 November 2007


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