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Agglomeration And The Extent Of The Market: An Experimental Investigation Into Spatially Coordinated Exchange, Jordan Adamson
Agglomeration And The Extent Of The Market: An Experimental Investigation Into Spatially Coordinated Exchange, Jordan Adamson
ESI Working Papers
How and why do agglomerations emerge? While economic historians emphasize trade and economic geographers emphasize variety, we still don’t understand the role of coordination. I fill this gap by extending the model of Fudenberg and Ellison (2003) to formalize Smith’s (1776) theory of agglomeration. I then test the model in a laboratory experiment and find individuals tend to coalesce purely to coordinate exchange, with more agglomeration when there is a larger variety of goods in the economy. I also find that tying individuals to the land reduces agglomeration, but magnifies the effect of variety.