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

Authored by Christopher S. Fowler

Date Published: 2011-05

DOI: 10.1093/jeg/lbq006

Sponsors: No sponsors listed

Platforms: Repast

Model Documentation: Other Narrative Mathematical description

Model Code URLs: Model code not found

Abstract

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.

Tags

Agent-based models geographical economics General equilibrium A12 C15 C62 R12 assumption testing