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Chapter 8


In Chapter 8 I will examine each of the following terms in turn.


Agglomeration economies  Cost advantages to producers and consumers from location in cities and towns, which take the forms of urbanization economies and localization economies.

Congestion  The opposite of a complementarity; an action taken by one agent that decreases the incentives for other agents to take similar actions.  For example, if most people travel on one highway between two cities, the incentive is present for travelers to try alternate routes.

Expected income  In the Todaro migration model, the product of the urban wage rate and the probability of finding an urban job.

Induced migration  Process in which the creation of urban jobs raises expected incomes and induces more people to migrate from rural areas.  See Todaro migration model.

Informal sector  The part of the urban economy of LDCs characterized by small competitive individual or family firms, petty retail trade and services, labor-intensive methods, free entry, and market-determined factor and product prices.  It often provides a major source of urban employment and economic activity.

Localization economies  Agglomeration effects captured by particular sectors of the economy, such as finance or autos, as they grow within an area.

Present value  The discounted value at the present time of a sum of money to be received in the future.

Social capital  The productive value of a set of social institutions and norms, including group trust, expected cooperative behaviors with predictable punishments for deviations, and a shared history of successful collective action, that raises expectations for participation in future cooperative behavior.

Urban bias  The notion that most LDC governments favor the urban sector in their development policies, thereby creating a widening gap between the urban and rural economies.  See rural-urban migration.

Urbanization  The economic and demographic growth process of the urban centers.

Urbanization economies Agglomeration effects associated with the general growth of a concentrated geographic region.

Wage subsidy  A government financial incentive to private employers to hire more workers, as through tax deductions for new job creation.

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