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T. Grafeneder-Weissteiner, I. Kubin, K. Prettner, A. Fürnkranz-Prskawetz, S. Wrzaczek:
"Coping with indifficiencies in a New Economic Geography model: The unintended consequences of policy interventions";
Mathematical Social Sciences, 76 (2015), 146 - 157.

This article introduces a social planner version of a central microfoundedNewEconomic Geography model
for explicitly answering whether the symmetric equilibrium of the decentralized market economy is
socially desirable. We find that savings incentives are too weak, resulting in an inefficiently low capital
stock and therefore an inadequate number of product varieties. We derive the appropriate subsidy and
taxation scheme to remedy these distortions. Interestingly, implementing the associated policies crucially
impacts on the stability of the symmetric equilibrium and has the potential to result in unintended
agglomeration processes.

new economic geography, dynamic systems

http://dx.doi.org/10.1016/j.mathsocsci.2015.05.003