Journal Article

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

Christopher S. Fowler

in Journal of Economic Geography

Volume 11, issue 3, pages 457-480
Published in print May 2011 | ISSN: 1468-2702
Published online March 2010 | e-ISSN: 1468-2710 | DOI: https://dx.doi.org/10.1093/jeg/lbq006
Finding equilibrium: how important is general equilibrium to the results of geographical economics?

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  • Econometric and Statistical Methods and Methodology: General
  • General Economics
  • Mathematical Methods; Programming Methods; Mathematical and Simulation Modelling
  • Urban, Rural, and Regional Economics

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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 equilibrium-based 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.

Keywords: agent-based models; assumption testing; general equilibrium; geographical economics; A12; C15; C62; R12

Journal Article.  11262 words.  Illustrated.

Subjects: Econometric and Statistical Methods and Methodology: General ; General Economics ; Mathematical Methods; Programming Methods; Mathematical and Simulation Modelling ; Urban, Rural, and Regional Economics

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