The existence and uniqueness of short-run equilibrium of the Dixit-Stiglitz-Krugman model in an urban-rural setting

Abstract

The Dixit–Stiglitz–Krugman model is one of the most fundamental models in the new economic geography, and is described by the nominal wage equation. We obtain sufficient conditions for the existence and uniqueness of short-run equilibrium of this model, where a short-run equilibrium is defined by a solution of the nominal wage equation under the condition that the worker distribution is given. We construct an iteration scheme to obtain numerical short-run equilibria. No restriction is imposed on the total number of locations where economic activities are conducted.