Abstract
In this chapter we investigate the reasons behind the formation of diverse cities by identical individuals when there are more than a single private good—a structure that leads to specialisation and trade. We derive a model that combines (1987) with Gilles and Scotchmer (1997, 1998), and then reduce it to a simple optimisation problem with two variables: the relative prices of the private goods and the urban population size. This reduced form sheds new light on the advantages and disadvantages of choosing a diversified city system with specialisation and trade over a system of identical autarchic cities. Which of the two is preferable depends on the size of gains from trade in a diversified system relative to gains from an efficient city size in a system of identical autarchies. We present several examples to illustrate different possible outcomes of the model. The issue of decentralisation is discussed in Papageorgiou and (1998).
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© 1999 Springer Science+Business Media New York
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Papageorgiou, Y.Y., Pines, D. (1999). Specialisation and Trade. In: An Essay on Urban Economic Theory. Advances in Urban and Regional Economics, vol 1. Springer, Boston, MA. https://doi.org/10.1007/978-1-4615-4947-5_11
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DOI: https://doi.org/10.1007/978-1-4615-4947-5_11
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