The Formation of Urban Centers underR&D and Spillover Externalities

This paper proposes a model of urban agglomeration in conjunction withimperfect competition and endogenous product R&D of firms. The qualityof differentiated manufacturing goods is a result of R&D services providedby research firms. Sectoral interactions are subject to spatially dependenttransaction costs and (knowledge) spillover externalities. The paper analyzesthe existence of fundamental city patterns with respect to R&D intensity andthe degree of localization in knowledge production. The model features threeequilibrium formations: a monocentric, a mixed, and a perfectly integratedpattern, whereas the R&D intensity always increases towards the city center.[...]