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Explaining the size distribution of cities: x-treme economies

Author

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  • Berliant, Marcus
  • Watanabe, Hiroki
Abstract
The methodology used by theories to explain the size distribution of cities takes an empirical fact and works backward to first obtain a reduced form of a model, then pushes this reduced form back to assumptions on primitives. The induced assumptions on consumer behavior, particularly about their inability to insure against the city-level productivity shocks in the model, are untenable. With either self insurance or insurance markets, and either an arbitrarily small cost of moving or the assumption that consumers do not perfectly observe the shocks to firms' technologies, the agents will never move. Even without these frictions, our analysis yields another equilibrium with insurance where consumers never move. Thus, insurance is a substitute for movement. Even aggregate shocks are insufficent to generate consumer movement, since consumers can borrow and save. We propose an alternative class of models, involving extreme risk against which consumers will not insure. Instead, they will move.

Suggested Citation

  • Berliant, Marcus & Watanabe, Hiroki, 2008. "Explaining the size distribution of cities: x-treme economies," MPRA Paper 7587, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:7587
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    References listed on IDEAS

    as
    1. Jan Eeckhout, 2004. "Gibrat's Law for (All) Cities," American Economic Review, American Economic Association, vol. 94(5), pages 1429-1451, December.
    2. Gilles Duranton, 2007. "Urban Evolutions: The Fast, the Slow, and the Still," American Economic Review, American Economic Association, vol. 97(1), pages 197-221, March.
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    4. Berliant, Marcus & Kung, Fan-chin, 2006. "Can Information Asymmetry Cause Agglomeration?," MPRA Paper 1278, University Library of Munich, Germany, revised 29 Dec 2006.
    5. Kristian Behrens & Gilles Duranton & Frédéric Robert-Nicoud, 2014. "Productive Cities: Sorting, Selection, and Agglomeration," Journal of Political Economy, University of Chicago Press, vol. 122(3), pages 507-553.
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    8. Berliant, Marcus & Kung, Fan-chin, 2010. "Can information asymmetry cause stratification?," Regional Science and Urban Economics, Elsevier, vol. 40(4), pages 196-209, July.
    9. Xavier Gabaix, 2011. "The Granular Origins of Aggregate Fluctuations," Econometrica, Econometric Society, vol. 79(3), pages 733-772, May.
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    12. Gabaix, Xavier & Ioannides, Yannis M., 2004. "The evolution of city size distributions," Handbook of Regional and Urban Economics, in: J. V. Henderson & J. F. Thisse (ed.), Handbook of Regional and Urban Economics, edition 1, volume 4, chapter 53, pages 2341-2378, Elsevier.
    13. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September.
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    15. Xavier Gabaix, 1999. "Zipf's Law for Cities: An Explanation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(3), pages 739-767.
    16. Xavier Gabaix, 1999. "Zipf's Law and the Growth of Cities," American Economic Review, American Economic Association, vol. 89(2), pages 129-132, May.
    17. Xavier Gabaix & Parameswaran Gopikrishnan & Vasiliki Plerou & H. Eugene Stanley, 2003. "A theory of power-law distributions in financial market fluctuations," Nature, Nature, vol. 423(6937), pages 267-270, May.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. On the size of cities
      by Economic Logician in Economic Logic on 2011-09-28 19:08:00

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    Cited by:

    1. Charles Ka Yui Leung & Joe Cho Yiu Ng, 2018. "Macro Aspects of Housing," GRU Working Paper Series GRU_2018_016, City University of Hong Kong, Department of Economics and Finance, Global Research Unit.
    2. Marcus Berliant & Axel H. Watanabe, 2018. "A scale‐free transportation network explains the city‐size distribution," Quantitative Economics, Econometric Society, vol. 9(3), pages 1419-1451, November.
    3. Ho Yeon KIM & Petra de Jong & Jan Rouwendal & Aleid Brouwer, 2012. "Shrinking population and the urban hierarchy [Housing preferences and attribute importance among Dutch older adults: a conjoint choice experiment]," ERSA conference papers ersa12p350, European Regional Science Association.
    4. Oshiro, Jun & Sato, Yasuhiro, 2021. "Industrial structure in urban accounting," Regional Science and Urban Economics, Elsevier, vol. 91(C).
    5. Duranton, Gilles & Puga, Diego, 2014. "The Growth of Cities," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 2, chapter 5, pages 781-853, Elsevier.
    6. Wen-Tai Hsu & Thomas J. Holmes, 2009. "Optimal City Hierarchy: A Dynamic Programming Approach to Central Place Theory," 2009 Meeting Papers 342, Society for Economic Dynamics.
    7. Wei Zhu & Ding Ma & Zhigang Zhao & Renzhong Guo, 2020. "Investigating the Complexity of Spatial Interactions between Different Administrative Units in China Using Flickr Data," Sustainability, MDPI, vol. 12(22), pages 1-12, November.
    8. Christian Ghiglino & Kazuo Nishimura & Alain Venditti, 2020. "A theory of heterogeneous city growth," International Journal of Economic Theory, The International Society for Economic Theory, vol. 16(1), pages 27-37, March.
    9. Tomoya Mori & Tony E. Smith, 2009. "A Reconsideration of the NAS Rule from an Industrial Agglomeration Perspective," KIER Working Papers 669, Kyoto University, Institute of Economic Research.
    10. Kim, Ho Yeon, 2012. "Shrinking population and the urban hierarchy," IDE Discussion Papers 360, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    11. Ramos, Arturo & Sanz-Gracia, Fernando, 2015. "US city size distribution revisited: Theory and empirical evidence," MPRA Paper 64051, University Library of Munich, Germany.
    12. Behzod B. Ahundjanov & Sherzod B. Akhundjanov & Botir B. Okhunjanov, 2022. "Power law in COVID‐19 cases in China," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 185(2), pages 699-719, April.

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    More about this item

    Keywords

    Zipf's Law; Gibrat's Law; Size Distribution of Cities; Extreme Value Theory;
    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)

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