Growth, agglomeration, and urban congestion

We consider a microfounded urban growth model with two regions and a mass of mobile workers to study interactions among growth, agglomeration, and urban congestion. Unlike previous research in the urban growth literature, we formulate the model as a one-shot game and take an evolutionary game-theoretic approach for stability analysis. Our approach enables us to analyze stability of nonstationary equilibria in which populations of each region are not constant over time. We show that if both the expenditure share for housing and inter-regional transport cost are small, a stable stationary equilibrium does not exist. Moreover, in such a case, we show that there can exist a stable nonstationary equilibrium in which mobile workers agglomerate in one region at first but some of them migrate to the other region later. We argue that such a nonstationary location pattern is related to return migration.