Knowledge Spillovers, Network Formation, and Urban Configurations

This project models the uncompensated knowledge spillovers as the main driving forces of spatial agglomeration. Such spillovers, possibly in forms of human or research capital, have long been regarded as important sources for sustained economic growth. A new approach to city formation, as strategic network formation, is adopted. Because knowledge can be transmitted only when both parties are linked in the network sense, the network formation approach is a natural framework to define and examine the underlying spatial configuration of the equilibrium. While it is beneficial to be connected to take advantage of knowledge transmission from other locations, maintaining a link is costly. Depending on its roles, a location may become a core, serving as a knowledge aggregation and transmission node for other connected peripheral locations.The equilibrium spatial configuration can take many forms, such as monocentric, multicentric, urban-rural, or multiple urban areas. Using theoretical analysis and computer simulations, this project investigates the parameter range for different spatial equilibrium pattern. The conditions under which a particular spatial configuration may emerge are examined. Comparative statics analysis is performed with respect to changes in knowledge spillover, link maintenance, urban land rent, rent gradient, and urban unemployment parameters.