NEG theories

Question 1

5 characteristics that influence firm’s location decisions

Answer 1

• cumulative causation (snowball effect)
• multiple equilibria possible
• sub-optimal equilibria possible
• stable and unstable equilibria
• home market effect

Question 2

Modelling techniques and central questions of NEG

Answer 2

• Dixit-Stiglitz
• Samuelson’s iceberg transport costs
• Cumulative processes
• > until when is agglomeration sustainable?
• > when is a symmetric equilibrium unstable?

—> depends on centripetal and centrifugal forces + interaction between production costs and market access

Question 3

Concentration vs. agglomeration

Answer 3

Concentration: 1 or a couple of sectors
Agglomeration: larger part of economic activity
-> concentration and agglomeration do not need to coincide