Publication at Faculty of Social Sciences, Faculty of Mathematics and Physics, Centre for Economic Research and Graduate Education |
2016
Abstract
Anas's impossibility theorem states that monopolistic competition or economies of scale alone are insufficient to explain growth of cities in response to growing population or decreasing trade costs (under constant urban costs); cities shrink. To enhance realism of assumptions, instead of Anas's normative approach, we study stable equilibria in the presence of another sector.
Still, vanishing' remains robust! Ultimately, we argue that vanishing' mechanism looks realistic and can have an explanatory power: industries, free of externalities, should locate in small towns. Moreover, the comparative statics shows how such manufacturing' towns gradually decline, whereas other cities do not.