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Agglomeration and the extent of the market: Theory and experiment on spatially coordinated exchange

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  • Adamson, Jordan
Abstract
Cities and marketplaces are central to economic development, but we know little about the mechanisms that cause such agglomerations to form. I theorize that evolutionary forces select for agglomerations when individuals desire to spatially coordinate exchange in complex environments. To test this idea, I perform a laboratory experiment where geographically dispersed individuals bring different goods to a location for trade. Consistent with the theory, I find that individuals spontaneously coalesce to reap the gains from exchange and there is more agglomeration in economies with a larger variety of goods. I also find that agglomerations re-emerge at the same locations after shocks, being land-tied reduces agglomeration but magnifies the effect of variety, individual location choices aggregate to create a Zipf population distribution, and individuals earn more in agglomerations.

Suggested Citation

  • Adamson, Jordan, 2021. "Agglomeration and the extent of the market: Theory and experiment on spatially coordinated exchange," Journal of Economic Behavior & Organization, Elsevier, vol. 190(C), pages 838-850.
    • Handle: RePEc:eee:jeborg:v:190:y:2021:i:c:p:838-850
    DOI: 10.1016/j.jebo.2021.08.009
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    More about this item

    Keywords

    Spatial coordination; Agglomeration; Pure-exchange;
    All these keywords.

    JEL classification:

    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • F19 - International Economics - - Trade - - - Other

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