A Cost-Efficiency Theory of Dispersed Network Equilibria

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Abstract
The purpose of this paper is to unite two current approaches to modeling dispersed spatial-interaction behavior: the entropy-smoothing approach, and the cost-efficiency approach. The main result of the paper is to show that those interaction flows determined by entropy-smoothing techniques correspond (for large flows) to the most probable flow patterns consistent with cost-efficient spatial-interaction behavior. In addition, it is shown that under very general conditions, these flow patterns are indeed overwhelmingly most probable. Thus, these results establish a clear behavioral foundation for entropy-smoothing techniques in terms of the cost-efficiency theory. Finally, a number of statistical estimation procedures are developed for operationalizing this theory.