We consider an individual who lacks the information-processing capacity required for a direct comparison of all feasible allocations. Instead of finding at once a best allocation, the individual myopically adjusts his current allocation toward higher utility. The individual makes adjustment errors inversely proportional to his ability to choose. We compare the stationary state of this process with the standard model. We see how an imperfect ability to choose modifies both positive and normative predictions of the standard model and how the standard model can be obtained from our more general one as the special case corresponding to perfect ability.

Humans exhibit a fundamental propensity to interact for social, cultural, technological, and other reasons. In this paper we seek to determine when the propensity to interact, expressed in the form of a spatial externality, becomes strong enough to induce agglomeration. We design an abstract world where the only possible reason for agglomeration is the spatial externality. In this world the uniform population distribution is a steady-state. Then to ask under what circumstances does a spatial externality induce agglomeration is to ask under what circumstances does it induce an instability of the steady-state: anything other than a uniform steady-state implies some agglomeration.

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The authors consider an individual who lacks the information-processing capacity required for a direct comparison of all feasible allocations. Instead of finding at once a best allocation, the individual myopically adjusts his current allocation toward higher utility. The individual makes adjustment errors inversely proportional to his ability to choose. The authors compare the stationary state of this process with the standard model. They see how an imperfect ability to choose modifies both positive and normative predictions of the standard model and how the standard model can be obtained from the authors' more general one as the special case corresponding to perfect ability.