Working Paper: CEPR ID: DP3385
Authors: Pierre M. Picard; Jacques-François Thisse; Eric Toulemonde
Abstract: In modern economies, the amount of profits distributed to shareholders is far from being negligible. We show that the way profits are distributed among agents matters for the space-economy. For example, the existence of mobile rentiers is sufficient to make the symmetric configuration unstable for all transport cost values and to make partial agglomeration of firms stable. Obviously, to account for profits and for their distribution, the assumption of free entry must be abandoned. So doing, we ignore fixed costs and show that it is imperfect competition more than increasing returns that matters for the formation of agglomeration in economic geography.
Keywords: economic geography; imperfect competition; product differentiation
JEL Codes: L13; R13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| profit distribution (D33) | spatial economy (R12) |
| existence of mobile rentiers (J61) | destabilization of symmetric configurations (C62) |
| existence of mobile rentiers (J61) | agglomeration of firms (R32) |
| firm ownership by entrepreneurs (L26) | agglomeration of firms (R32) |
| symmetric equilibrium instability (C62) | partial or full agglomeration (R11) |
| constant returns to scale coexist with agglomeration (R12) | firms maintain market power (L11) |