A continuous space model of new economic geography with a quasi-linear log utility function

TL;DR

This paper extends a tractable New Economic Geography model with a quasi-linear log utility to continuous space, analyzing its equilibrium behavior and demonstrating the instability of homogeneous distributions leading to spiky patterns.

Contribution

It introduces a continuous space formulation of a NEG model with a quasi-linear log utility and analyzes the stability and pattern formation of its solutions.

Findings

Unique global solution constructed

Homogeneous stationary solution is unstable

Spiky spatial distributions form over time

Abstract

We consider the extension of a tractable NEG model with a quasi-linear log utility to continuous space, and investigate the behavior of its solution mathematically. The model is a system of nonlinear integral and differential equations describing the market equilibrium and the time evolution of the spatial distribution of population density. A unique global solution is constructed and a homogeneous stationary solution with evenly distributed population is shown to be unstable. Furthermore, it is shown numerically that the destabilized homogeneous stationary solution eventually forms spiky spatial distributions. The number of the spikes decreases as the preference for variety increases or the transport cost decreases.