Working Paper: NBER ID: w29078
Authors: Jacques-François Thisse; Matthew Turner; Philip Ushchev
Abstract: How do people arrange themselves when they are free to choose work and residence locations, when commuting is costly, and when increasing returns may affect production? We consider this problem when the location set is discrete and households have heterogenous preferences over workplace-residence pairs. We provide a general characterization of equilibrium throughout the parameter space. The introduction of preference heterogeneity into an otherwise conventional urban model fundamentally changes equilibrium behavior. Multiple equilibria are pervasive although stable equilibria need not exist. Stronger increasing returns to scale need not concentrate economic activity and lower commuting costs need not disperse it. The qualitative behavior of the model as returns to scale increase accords with changes in the patterns of urbanization observed in the Western world between the pre-industrial period and the present.
Keywords: No keywords provided
JEL Codes: R0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Preference heterogeneity (D11) | equilibrium behavior (D50) |
| equilibrium behavior (D50) | multiple equilibria (D50) |
| Strength of returns to scale (D24) | urban structure (R11) |
| Constant returns to scale or weak increasing returns (D24) | unique interior equilibrium (C62) |
| Strong increasing returns (G19) | employment disperses (J63) |
| High or low commuting costs (R41) | dispersed employment (J68) |
| Intermediate commuting costs (R48) | concentrated employment (J68) |
| Commuting costs (R41) | economic concentration (D30) |