Agglomeration and welfare of the Krugman model in a continuous space

TL;DR

This paper analyzes the conditions under which agglomeration or dispersion equilibria are socially preferable in a continuous space core-periphery model, focusing on the impact of transport costs on equilibrium welfare.

Contribution

It introduces a continuous space model to compare agglomeration and dispersion equilibria and identifies critical transport cost thresholds affecting social preference.

Findings

Agglomeration is socially preferable when transport costs are below a critical value.

Above the critical transport cost, the two equilibria cannot be ordered in terms of social welfare.

The model provides insights into spatial economic equilibria and policy implications.

Abstract

Two spatial equilibria, agglomeration and dispersion, in a continuous space core-periphery model are examined to discuss which equilibrium is socially preferred. It is shown that when transport cost is lower than a critical value, the agglomeration equilibrium is preferable in the sense of Scitovszky, while when the transport cost is above the critical value, the two equilibria can not be ordered in the sense of Scitovszky.