ABSTRACT
This chapter suggests that neoclassical analysis of regional economics, and it is with some trepidation that we approach this assignment. Many of the assumptions in neoclassical general equilibrium analysis, purportedly made for the purpose of simplification, abstract from central features of the underlying model and result in conclusions which are at best misleading and at worst incorrect. The model of consumer differences can be given a regional interpretation by assuming that our two groups of consumers live in different regions, where transportation costs between these two regions are high relative to transportation costs to neighboring foreign markets. Professor Perroux has long understood that differences in the economic activities of regions would be expected to produce interregional disparities. Professor Perroux goes further and argues for the abandonment of the neoclassical methodology in favour of a more sophisticated approach based on the modern theory of thermodynamics.
