"Economic Geography and Rational Expectations"
Eventhough the consequences of the rational expectation assumption have been somewhat explored in the literature concerning two-country models, we are not aware of any attempt to explore the role that rational behavior may have in a continuous spatial economy. Our model builds on Fujita et al. (1999)'s racetrack economy. However, here, workers are assumed to have a perfect foresight ability. Our result reemphasizes the role of the local market structure on the convergence process: like in Fujita et al. (1999), scale economies at the local level and free mobility of workers contribute to spatial divergence. However, unlike in the corresponding myopic case studied by Mossay (2003), the size of agglomerations increases with the taste for variety and the expenditure share on manufactured goods, and decreases with transport costs. The role of rational adjustments with respect to myopic adjustments is to thus distort the relationship between the amplification factor and the wavelength.