General equilibrium models for allocation in space under interdependency and increasing returns to scale

Abstract

Most general equilibrium models — both dynamic and static — lack the spatial dimension. There is however a small number of exceptions — the general equilibrium models of Lefeber (1958). Mills (1970) and Koopmans-Beckman (1957) are examples ordered in increasing degree of complexity in assumptions made. It is the aim of this paper to relax some of the simplifying assumptions made in the previously mentioned spatial models in order to analyze the consequences for the solvability.

The first question posed is about the existence of solutions to more general spatial models. The second question concentrates on the implementation aspect of primal solutions to spatial models. The third question concerns the problem of an optimal number of firms. The theoretical discussion is followed by a numerical example. Operational conclusions are presented.