Working Papers, Department of Economics, Lund University
Determining the Level of Transportation Costs in the Core-Periphery Model: a Majority Voting Approach
Abstract: We analyse the political determination of transportation
costs in an analytically solvable core-periphery model. In a benchmark case
with certainty about where agglomeration takes place, we find that a
majority of voters prefers low trade costs and the resulting equilibrium is
an industrialised core and a de-industrialised periphery. Allowing for
uncertainty we show that a high trade cost candidate, that guarantees the
initial symmetric equilibrium, may defeat the core-periphery equilibrium
candidate. The reason is that a coalition of risk-averse immobile factors
of production votes for status quo due to uncertainty about which region
that will attract industrial activity.
Keywords: core-periphery model; majority voting; new economic geography; regional policy; (follow links to similar papers)
JEL-Codes: F12; F15; R12; (follow links to similar papers)
37 pages, May 31, 2005
This paper has been replaced by WP 2006:22 "Resisting Economic Integration when Industry Location is Uncertain"
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