Forschungsgruppe ORCOS
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Economic Geography

New Economic geography (NEG), invented by the seminal paper of Krugman (JPE, 1991), explaines the forces (trade, capital and/or labor mobility) that lead to agglomeration between two regions. We study the effects of demographics on the equilbrium outcome of the models and especially on their stability. Further we are the first to consider the first-best (by considering a social planner) outcome in the constructed capital model. By a comparison to the decentralized model we are able to isolate the reason for the differences and to derived incentives such that the first-best outcome can also be reached in decentralized models. In a further step we will further extend the approach by considering two different social planners for each region in a differential game approach.