August 2006

IZA DP No. 2256: Towards a Unifying Approach of the 'New Economic Geography'

published in revised form as 'A synthesis of footloose-entrepreneur new economic geography models: when is agglomeration smooth and easily reversible?' in: Journal of Economic Geography, 2008, 8 (1), 39-54

Models of the new economic geography share a number of common conclusions, but also exhibit notable differences, in particular with respect to the shape of the location pattern and the efficiency of the market equilibrium. This reflects the fact that these models rely heavily on specific functional forms. In this paper we approach the properties of the 'footloose entrepreneur' class of new economic geography models with a unifying framework based on the indirect utility function of mobile agents. This approach has several payoffs. We are able to provide general, yet handy, formulae to determine the break point, the bifurcation pattern and the welfare properties of the market equilibrium. Moreover, an application of this framework allows us to show how specific results in the literature can be reconciled as special cases, thereby allowing us to highlight the origin of their differences.