JOURNAL OF REGIONAL SCIENCE, VOL. 51, NO. 5, 2011, pp. 897–930 DISENTANGLING AGGLOMERATION ECONOMIES: AGENTS, SOURCES, AND SPATIAL DEPENDENCE * In Kwon Park Department of Public Policy & Administration, Rutgers University, 401 Cooper Street, Camden, NJ. E-mail: ipark@camden.rutgers.edu Burkhard von Rabenau City and Regional Planning, The Ohio State University, 275 W. Woodruff Avenue, Columbus, OH 43210. E-mail: von-rabenau.1@osu.edu ABSTRACT. This paper expands the literature on agglomeration economies in three ways. It dis- entangles amenity and productivity effects of agglomeration; it decomposes aggregate scale effects into agglomeration factors of interest to policy makers; and it estimates own effects and spillovers to neighbors. It proposes a spatial simultaneous equations model in a spatial equilibrium framework with three agents—workers, consumers, and producers of traded-goods and housing. Results for Ohio counties estimate economies resulting from population size, agglomeration causes, and public service quality and cost on each of the three agents in own and neighboring counties. 1. INTRODUCTION On the surface, the concept of agglomeration economies is simple enough. As the size of an urban economy increases, its firms become more productive and its consumers enjoy greater amenities. Without agglomeration economies, there could be no trade, and popu- lation would distribute itself uniformly over space, except for concentrations in locations with increased resource endowments or higher productivity. However, the mechanisms and causes of agglomeration economies are difficult to model, and without this there are few policies other than direct interventions to change the size of cities or redirect migrants. This paper aims to deconstruct the concept in three ways. First, it disentangles the effect of agglomeration economies on three agents— consumers and firms in two sectors, a traded-good sector and a sector producing local goods. Size will affect these sectors differently, and possibly, in opposite direction, and only a model that explicitly accounts for the behavior of all three agents will be able to account for their separate role in generating agglomeration economies. Most studies of agglomeration economies, however, look only at either the productivity of firms or the quality of life for consumers. ∗ We are grateful to Dr. Brakman, the JRS co-editor, and the three anonymous referees for their valuable comments on the paper. In particular, the emphasis on spatial dependence should be attributed to the co-editor and another referee. We also appreciate Mr. Joseph J. Hausman, Roadway Information Manager of Ohio Department of Transportation, for providing the transportation data. All errors and misunderstandings are those of the authors. Received: June 2009; revised: June 2010; accepted: August 2010. C  2011, Wiley Periodicals, Inc. DOI: 10.1111/j.1467-9787.2011.00719.x 897