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Title:Capital Market Frictions and Economic Geography PDF Logo
Authors:Kranich, Jan
Hakenes, Hendrik
Issue Date:2010
Series/Report no.:Beiträge zur Jahrestagung des Vereins für Socialpolitik 2010: Ökonomie der Familie - Session: Policy Issues of Firm Heterogeneity and Trade B5-V2
Abstract:The field of New Economic Geography (NEG) aims at explaining agglomeration based on increasing returns, monopolistic competition and international factor mobility. Deviating from existing approaches, this paper constructs a theoretical model based on capital market frictions. Firms compete monopolistically, but are lead by managers subject to moral hazard. Incentivizing managers is cheaper in regions with higher purchasing power, i.e., in industrialized regions where goods do not need to be imported and the price index is thus low. This simple mechanism leads to a host of predictions; some in line with traditional NEG literature, some contradictory.
Subjects:New Economic Geography
Capital market
Moral hazard
JEL:F12
F21
G15
Document Type:Conference Paper
Appears in Collections:Jahrestagung des Vereins für Socialpolitik 2010: Ökonomie der Familie

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