| Abstract: | Relocation costs are a form of sunk costs because they are relevant to new entrants, not to agents at their existing locations. With sufficiently high relocation costs, initial (historically given) locations and other conditions determine the equilibrium assignment of agents to locations. Comparative static results depend on initial conditions, i.e., history matters and historical persistence can be characterized. The model suggests empirically-relevant results which can be tested by collecting data on relocation and transportation costs. For example, appropriate levels of these costs imply that suburbanization always occurs with the entry of new firms. Sequential entry strategies may be adopted by existing firms which earn pure profits. This may be contrasted with traditional NUE models which predict changes in the boundaries of central zones. |
