Theory – new economic geography
nBased on Fujita, Krugman and Venables
nIncreasing returns and monopolistic competition led to agglomeration
nTerror attacks more likely in agglomerations
nTerrorism acts like a tax on production for firms in agglomeration
•No analytic solution – numerical simulation
•Modest amounts of terrorism leave agglomeration
unchanged
•Higher levels destroy rationale for agglomeration and
lead to dispersion of
production
nFor many parameter values dispersal is an alternative
stable solution – end of
terror does not restore agglomeration