A Spatial Framework for Social Interactions

Our purpose is to explain how the external effect arising from social interactions can lead individuals to cluster in a spatial economy. Our approach relies on the tools of modern urban economics, including the notion of spatial equilibrium. The paper also enlarges and extends the discussion to general issues arising in spatial economics. Namely, we touch on the concepts of spatial trade-off, spatial externality, the discrepancy between the decentralized equilibrium and the social optimum, as well as multiple equilibria. Finally, in the light of our framework, we comment on institutions in a spatial environment.