Herd behaviour and the emergence of clusters

ABSTRACT Agglomeration externalities are generally credited as the prime cause of cluster formation. This theory is far from uncontroversial. We create an alternative perspective on clustering by integrating herd behaviour into the conceptualization of this process. An innovative agent-based model is used in which cluster formation is constructed from individual relocation decisions. It thus connects individual relocation decisions to macro-level emergent patterns and shows that imitation has the potential to severely exacerbate the effects of agglomeration economies on clustering on an urban scale. The outcomes of this model challenge the dominant neoclassical view on clustering. An alternative hypothesis is postulated in which the interaction between herd behaviour and agglomeration externalities is proposed as an explanation for cluster formation.