Economic Geography: The Integration of Regions and Nations

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Overview

"Combes, Mayer, and Thisse have just given me an indispensable teaching tool and a great text for my students. Their book offers the most up-to-date, balanced, comprehensive treatment of both theoretical and empirical research."--Kiminori Matsuyama, Northwestern University

"In the field of geographical economics, this is exactly the kind of book that I have been waiting for. After presenting lucid and comprehensive coverage of the current state of theory, it provides the modern methodology for measuring spatial concentration and inequalities. Then it confronts the challenging task of comparing theory with facts. This book will serve as an ideal textbook for graduate students and scholars in economic geography, regional development, international trade, and public policy."--Masahisa Fujita, RIETI, Japan

"Economic geography has undergone something of a revolution in the last fifteen years with the application of formal theoretical modeling and econometric estimation to old questions. The many advances have, however, left us with a literature that is discursive, disparate, and disjointed. This book does an exceptional job of adding the needed structure, and helps all of us move toward a more complete and integrated understanding of this still-evolving area."--James R. Markusen, University of Colorado at Boulder

"Combes, Mayer, and Thisse have put together a marvelous book on economic geography. With clear, lucid writing, they present the theory and empirics of economic geography in a way that will provide insights to both those new to the field and those in search of an excellent reference work."--David Weinstein, Columbia University

"Combes, Mayer, and Thisse have produced the rare text that is of value to both theorists and empirical researchers. They present the current state of knowledge about economic geography in an accessible way, paying equal attention to formal models and applied work. Their framework provides an elegant synthesis of concepts in regional economics, international trade, and economic development, which will be of broad interest to scholars and policymakers alike."--Gordon Hanson, University of California, San Diego

"A welcome addition to the literature. The authors are well-known researchers in the subject both on the theoretical and empirical sides. They put heavy emphasis on recent empirical research, not only reviewing the literature but also teaching the methodologies commonly used. No existing textbook in economic geography does this. This book fills a real gap."--Philippe Martin, coauthor of Economic Geography and Public Policy

"This book is well-written, extremely clear, and very well-focused. Other books are either too advanced for anyone starting in the field or too basic to be of any use beyond basic undergraduate courses. Beyond teaching, this book should also be very useful as a reference."--Gilles Duranton, University of Toronto

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Editorial Reviews

Journal of International Economics
Economic Geography: The Integration of Regions and Nations is an outstanding contribution to the field. . . . Even those most familiar with the economic geography literature will emerge from reading the book challenged, engaged, and enlightened.
— Donald R. Davis
Economic Geography Research Group
The book delivers important insights into the theories and practices of economic geography and opens opportunities for new avenues of research, by providing extensions of the existing theoretical models which can form the basis of new applications and tests to these theories. . . . [T]his book is highly recommended for both academic and graduates.
— Vítor Braga
Regional Studies
[T]he book by Combes et al. gives an excellent overview of identification, estimation, omitted variables, reverse causality, sorting and evaluation issues related to geographical economics modeling outcomes as well as urban economics and interaction modeling outcomes. Empirical researchers will appreciate the overviews given here.
— Frank Van Oort
Journal of International Economics - Donald R. Davis
Economic Geography: The Integration of Regions and Nations is an outstanding contribution to the field. . . . Even those most familiar with the economic geography literature will emerge from reading the book challenged, engaged, and enlightened.
Economic Geography Research Group - Vitor Braga
The book delivers important insights into the theories and practices of economic geography and opens opportunities for new avenues of research, by providing extensions of the existing theoretical models which can form the basis of new applications and tests to these theories. . . . [T]his book is highly recommended for both academic and graduates.
Regional Studies - Frank Van Oort
[T]he book by Combes et al. gives an excellent overview of identification, estimation, omitted variables, reverse causality, sorting and evaluation issues related to geographical economics modeling outcomes as well as urban economics and interaction modeling outcomes. Empirical researchers will appreciate the overviews given here.
Economic Geography Research Group - Vítor Braga
The book delivers important insights into the theories and practices of economic geography and opens opportunities for new avenues of research, by providing extensions of the existing theoretical models which can form the basis of new applications and tests to these theories. . . . [T]his book is highly recommended for both academic and graduates.
From the Publisher

"Economic Geography: The Integration of Regions and Nations is an outstanding contribution to the field. . . . Even those most familiar with the economic geography literature will emerge from reading the book challenged, engaged, and enlightened."--Donald R. Davis, Journal of International Economics

"The book delivers important insights into the theories and practices of economic geography and opens opportunities for new avenues of research, by providing extensions of the existing theoretical models which can form the basis of new applications and tests to these theories. . . . [T]his book is highly recommended for both academic and graduates."--Vítor Braga, Economic Geography Research Group

"[T]he book by Combes et al. gives an excellent overview of identification, estimation, omitted variables, reverse causality, sorting and evaluation issues related to geographical economics modeling outcomes as well as urban economics and interaction modeling outcomes. Empirical researchers will appreciate the overviews given here."--Frank Van Oort, Regional Studies

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Product Details

  • ISBN-13: 9780691124599
  • Publisher: Princeton University Press
  • Publication date: 9/8/2008
  • Pages: 416
  • Product dimensions: 6.20 (w) x 9.30 (h) x 1.20 (d)

Meet the Author


Pierre-Philippe Combes is CNRS research professor of economics at the Universite d?Aix-Marseille. Thierry Mayer is professor of economics at the Universite Paris 1 Pantheon-Sorbonne. Jacques-Francois Thisse is professor of economics at the Universite Catholique de Louvain and professor at the Ecole Nationale des Ponts et Chaussees. His books include "Economics of Agglomeration".
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Read an Excerpt

Economic Geography
By Pierre-Philippe Combes Thierry Mayer Jacques-François Thisse Princeton University Press
Copyright © 2008
Princeton University Press
All right reserved.

ISBN: 978-0-691-13942-5


Chapter One Spatial Inequalities: A Brief Historical Overview

During the second millennium, the world's population increased by a factor of twenty-two, while world income increased by a factor of three hundred. This development, however, was not uniform and did not affect all countries in the same way. Between 1000 and 1820, the annual growth rate of income per capita in the countries of Western Europe was estimated at around 0.15%, which is extremely low. That rate then rose to 1.5%, thus reaching a level ten times higher than it had been for the previous eight centuries. This change of pace was to have considerable consequences for economic disparities between nations. Indeed, income increases by less than 4% in a twenty-five year period (roughly one generation) when the annual growth rate is 0.15%, while it grows by 45% when the growth rate reaches 1.5%. To put it another way, income per capita doubles after 46 years in the second case, while the same doubling takes 463 years in the first. Thus, while the income per capita of Europeans hardly differed from that of other inhabitants of the planet at the beginning of the second millennium, it is currently seven times higher (Maddison 2001, chapter1). The reason for this dramatic change is well-known: the Industrial Revolution.

In this chapter, we briefly discuss two major features of the Industrial Revolution that have been instrumental in reshaping the European economic space: (i) the existence of gigantic productivity gains and the tremendous lowering of transport costs; and (ii) the profound transformation of agricultural and rural societies into industrial and urbanized ones. Subsequently, we will see how, because of the Industrial Revolution, spatial inequalities became increasingly marked, not only between countries but also within them.

Our historical survey should ideally cover Europe, the United States, and Japan. However, in order to allow for meaningful long-run comparisons, we must consider economic spaces that have (more or less) the same borders. Furthermore, our aim is not to provide a detailed discussion of all the spatial implications of the Industrial Revolution. Instead, we are interested in a few facts that are directly relevant for economic geography. All of this has led us to focus mainly, but not solely, on Europe.

1.1 The Space-Economy and the Industrial Revolution

The Industrial Revolution began in Great Britain during the second half of the eighteenth century and then diffused to Continental Europe and North America. Since then, productivity gains have been steady and their accumulation has generated considerable multiplier effects. This economic development was accompanied by spectacular decreases in transport costs and massive rural-urban migration. The old agricultural economy became industrial and then, in the twentieth century, services became the primary economic sector.

1.1.1 Productivity Gains and Falling Transport Costs

The most distinctive feature of the Industrial Revolution was the considerable increase in productivity. According to Bairoch:

[I]t can be considered that, for the whole of the economy, the total factor productivity was multiplied on average in Western developed countries by 40 to 45 between 1700 and 1990. Even limiting ourselves to the years 1000 to 1700, which, in Europe, were on the whole a period of progress, it can be very roughly estimated that the productivity of the whole economy was, at best, multiplied by 2. Bairoch (1997, volume 1, pp. 97-98) [our translation]

Such productivity gains allowed an appreciable increase in individual incomes. The question of whether European countries were richer than others before the Industrial Revolution is still discussed by historians-but this debate changes the global picture very little. For example, while Bairoch (1993) believes that China and other Asian civilizations were more advanced than Western Europe in the sixteenth century, he is "still inclined to think that there was no sizable difference in the levels of income of the different civilizations when they reached their preindustrial peak" (p. 106). Whatever the value of these differences, there is no longer any question that the Industrial Revolution generated income disparities between countries and regions of a completely different nature and on an unprecedented scale.

The transportation sector underwent the most stunning changes during the Industrial Revolution. In particular, the great divergence between nations appeared when all distance-related costs underwent a drastic and historically unprecedented fall. The scope of this decline led Cipolla to contend that:

Fast and cheap transportation has been one of the main products of the Industrial Revolution. Distances have been shortened at an astonishing pace. Day by day the world seems smaller and smaller and societies that for millennia practically ignored each other are suddenly put in contact-or in conflict. Cipolla (1962, p. 13)

This was later confirmed by Bairoch in an evaluation of that spectacular transformation in the means of transportation:

On the whole, between 1800 and 1910, it can be estimated that the lowering of the real (weighted) average prices of transportation was on the order of 10 to 1. Bairoch (1997, volume 2, p. 26) [our translation]

The cost of transporting maritime cargo dropped dramatically during the nineteenth century, leading to the convergence of prices of several goods and to the gradual integration of international markets. One example is the case of wheat, whose price in Liverpool exceeded that of wheat in Chicago by 57.6% in 1870 but by only 15.6% in 1913; the price of steel in London was 75% higher than it was in Philadelphia in 1870, but only 20.6% higher in 1913; the price differential of cotton between Liverpool and Bombay fell from 57% in 1873 to 20% in 1913, while the price difference of jute between London and Calcutta dropped from 35% to 4% (Findlay and O'Rourke 2003).

In the first half of the nineteenth century the costs of ground transportation were still very high and weighed heavily on the prices of commodities. France provides a good illustration of this. For example, the transport of coal from Saint-Etienne to the ironworks of Champagnes-a distance of 545 km-multiplied the sale price by five. The coal of Sarrebrück was sold for F 9.50 a ton locally, but the price in Saint-Dizier, located 220 km away, was F 51.50, with transport costs representing 82% of the total price (Léon 1976).

After the emergence of railroads, things changed dramatically. For example, prior to the Industrial Revolution the average cost of ground transportation of grains per ton-kilometer was equal to the average cost of buying 4 or 5 kg of grain, but this cost fell to 0.1 kg per ton-kilometer in 1910 thanks to long-distance transportation by rail. Once we account for the decrease in the price of grain generated by technological innovations in agriculture, the decrease in transport costs is even larger: they are divided by a factor close to 50 (Bairoch 1997, chapter 4). In the United States, the average cost of moving a ton a mile in 1890 was 18.5 cents, as opposed to 2.3 cents today (in 2001 dollars), while trucking costs have fallen 2% per year since 1980 (Glaeser and Kohlhase 2004).

Moreover, the actual cost of shipping commodities also involves time costs, along with the cost of inventory holdings and depreciation costs. We deal here with another dimension of falling transport costs, i.e., a big reduction in the time of transport. By 1910, steamships were crossing the Atlantic at five times the speed of seventeenth-century boats, and with twenty times more tonnage. Currently, the value of an additional day of transportation is worth an average of 0.5% of the value of manufactured goods. Because of decreases in transport times, the real drop in transport costs is thus even more marked than that revealed solely by the level of freight. The gains are even more considerable for ground transport. For example, it took 358 hours in 1650 to go from Paris to Marseille but only 38 hours in 1854 and just 3 hours in 2002.

The progressive integration of markets produced by this unprecedented decline in transport costs must have had a considerable impact on the international division of labor, distinguishing between industrialized countries and countries specializing in the supply of primary goods. Yet unlike transport costs, tariff barriers did not experience the same evolution. As shown in table 1.1, a slow advance of free trade is observed at the end of the Napoleonic Wars (up until 1875), and that is followed by a real revival in protectionism, which culminated in the 1930s. On the other hand, customs barriers have been lowered uniformly and constantly since 1950, driving customs duties to their lowest level in history.

Although a large range of factors affect the degree of openness of national economies, a rough estimate of the total impact of the decline in transport costs and tariff barriers may be obtained by looking at the variations of the share of exports in gross domestic product (GDP). Maddison (2001) shows that between 1820 and 1998 the share of world exports in the world GDP has increased by a factor of 17. At a more disaggregated level, the pattern is similar.

Table 1.2 reveals another interesting, yet less widely known, fact: international trade had a more important role in the economy of industrialized countries in 1913 than it did in 1950. Even more surprisingly, on the eve of World War II, the share of production that was traded in the international marketplace fell back to the level observed in 1840, a century earlier. Protectionist policies, restrictive cartel and labor practices in transport, and the collapse of the gold standard were the main trade-reducing forces (Estevadeordal et al. 2003). The huge development in trade that preceded World War I suggests that the decline in transport costs had overcome fairly high tariffs between 1875 and 1913. This has allowed many economic historians to underline the emergence during the second half of the nineteenth century of a first phase of globalization ending in 1914, the main explanation of which lies in the dramatic drop in transport costs (O'Rourke and Williamson 1999).

By contrast, since 1950 the increase in trade seems to be due more to the progressive removal of trade barriers than to the decline in transport costs. Between 1950 and 2000, the global production of commodities-which differs from the world GDP since it includes neither services nor construction-was multiplied by 6, while the volume of goods exported increased 17-fold (World Trade Organization 2000).

As for communication, the invention of the telegraph and then the telephone brought about big falls in the time taken to transmit information. For comparison, let us recall that it took an average of 15-16 days for a letter to travel between Avignon and Paris during the Renaissance, between 25 and 30 days to travel between Florence and London, and 20-22 days between Florence and Paris (Verdon 2003, p. 245). Things were pretty much the same for the next three centuries. For example, Bairoch (1997, chapter 18) notes that it took practically two years for an exchange of correspondence between England and India at the beginning of the nineteenth century. Even after the opening of the Suez Canal it still required several months. So, it is easy to guess that long before the Internet, thanks to the invention of the telegraph and the telephone, information began to circulate at a speed previously unimaginable, deeply affecting both the ways in which societies worked and the lives of individuals.

The following quotation from Stefan Zweig's autobiography, The World of Yesterday, illustrates probably better than many academic works the impact of the first revolution in the means of communication on lifestyle and on people's mentalities:

There was no escape for our generation, no standing aside as in times past. Thanks to our new organization of simultaneity we were constantly drawn into our time. When bombs laid waste the houses of Shanghai, we knew of it in our rooms in Europe before the wounded were carried out of their homes. What occurred thousands of miles over the sea leaped bodily before our eyes in pictures. There was no protection, no security against being constantly made aware of things and being drawn into them. There was no country to which one could flee, no quiet which one could purchase; always and everywhere the hand of fate seized us and dragged us back into its insatiable play. Zweig (1944, p. 8 of the English translation)

This phenomenon underwent a drastic acceleration during the second half of the twentieth century. Table 1.3 compares the relative development of transportation and communication costs, with indices standardized at 100 at the first observation. If transport costs have continued to decrease, just not as fast as in the nineteenth century, then communication costs have fallen at an absolutely dizzying speed during the last few decades. For example, the costs of communication have fallen by more than 90% in the last twenty years.

In short, the questions raised by the current globalization of economies are far less new than is asserted in the general press. Keynes (1919) described marvelously the changes in the lifestyle and consumption habits of his contemporaries brought about by the globalization preceding World War I. The extract is a little long, but it is so relevant to this discussion that it is worth including:

What an extraordinary episode in the economic progress of man that age was which came to an end in August 1914! ... [L]ife offered, at a low cost and with the least trouble, conveniences, comforts, and amenities beyond the compass of the richest and most powerful monarchs of other ages. The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, in such quantity as he might see fit, and reasonably expect their early delivery upon his doorstep; he could at the same moment and by the same means adventure his wealth in the natural resources and new enterprises of any quarter of the world, and share, without exertion or even trouble, in their prospective fruits and advantages; or he could decide to couple the security of his fortunes with the good faith of the townspeople of any substantial municipality in any continent that fancy or information might recommend. He could secure forthwith, if he wished it, cheap and comfortable means of transit to any country or climate without passport or other formality ... and would consider himself greatly aggrieved and much surprised at the least interference. But, most important of all, he regarded this state of affairs as normal, certain, and permanent, except in the direction of further improvement, and any deviation from it as aberrant, scandalous, and avoidable. Keynes (1919, p. 4)

1.1.2 Motorization of Transport and Urbanization

The second feature marking the economic development of Europe is the almost perfect synchronization of the Industrial Revolution and urbanization due mainly to the advent of motorized transportation (steamboats, railroads, and finally automobiles). Steam navigation began in the United States in 1807 and the first railroad line was built in England in 1825. Although the urban population in Europe (outside Russia) in 1800 corresponded to only 12% of the total population, it reached 41% in 1910 and it is now 75%; a similar evolution arose in the United States, where the urban population share was 5% in 1800, 42% in 1910, and was close to 75% by 2005 (Bairoch 1988, chapter 13). On a historical scale, such figures are an indisputable sign of an explosive growth in urbanization.

(Continues...)



Excerpted from Economic Geography by Pierre-Philippe Combes Thierry Mayer Jacques-François Thisse
Copyright © 2008 by Princeton University Press. Excerpted by permission.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.
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Table of Contents

Foreword xiii
Acknowledgments xxiv

Part I: Facts and Theories 1
CHAPTER 1: Spatial Inequalities: A Brief Historical Overview 3
1.1 The Space-Economy and the Industrial Revolution 4
1.2 Regional Disparities: When an Ancient Phenomenon Becomes Measurable 12
1.3 Concluding Remarks 25

CHAPTER 2: Space in Economic Thought 26
2.1 Economics and Geography: A Puzzling History of Reciprocal Ignorance 27
2.2 Integrating Space in Economics: The Main Attempts 30
2.3 The Burden of Modeling Constraints 31
2.4 The Breakdown of the Competitive Paradigm in a Spatial Economy 35
2.5 What Are the Alternative Modeling Strategies? 41
2.6 Increasing Returns and Transport Costs: The Basic Trade-Off of Economic Geography 43
2.7 Concluding Remarks 48
Part II: Space, Trade, and Agglomeration 51

CHAPTER 3: Monopolistic Competition 53
3.1 The Dixit-Stiglitz Approach 55
3.2 Monopolistic Competition: A Linear Setting 71
3.3 Concluding Remarks 79
3.4 Related Literature 80

CHAPTER 4: Interregional Trade and Market Size 81
4.1 The Dixit-Stiglitz-Krugman Model of Trade 82
4.2 The Home-Market Effect 89
4.3 Concluding Remarks 98
4.4 Related Literature 100

CHAPTER 5: Gravity and Trade Costs 101
5.1 The Gravity Model 103
5.2 Trade Costs 115
5.3 Concluding Remarks 127
5.4 Related Literature 127

CHAPTER 6: The Core-Periphery Structure 130
6.1 Increasing Returns and Industrialization 133
6.2 Regional Disparities: The Krugman Model 137
6.3 The Krugman Model Revisited 160
6.4 Concluding Remarks 162
6.5 Related Literature 164

CHAPTER 7: Intermediate Goods and the Evolution of Regional Disparities 166
7.1 The Role of Intermediate Goods 169
7.2 The Spatial Distribution of the Manufacturing Sector 176
7.3 The Evolution of Regional Disparities 185
7.4 Concluding Remarks 191
7.5 Related Literature 192

CHAPTER 8: The Bell-Shaped Curve of Spatial Development 194
8.1 A Linear Core-Periphery Model 196
8.2 When Does the Bell-Shaped Curve Arise? 207
8.3 Concluding Remarks 221
8.4 Related Literature 222

CHAPTER 9: Spatial Competition 223
9.1 Spatial Duopoly à la Hotelling 224
9.2 Spatial Oligopoly à la Cournot 238
9.3 Concluding Remarks 250
9.4 Related Literature 251
Part III: Breadth and Determinants of Spatial Concentration 253

CHAPTER 10: Measuring Spatial Concentration 255
10.1 The Properties of an Ideal Index of Spatial Concentration 256
10.2 Spatial Concentration Indices 259
10.3 Indices Accounting for Industrial Concentration 266
10.4 The Duranton-Overman Continuous Approach 269
10.5 Concluding Remarks 274
10.6 Related Literature 274

CHAPTER 11: Determinants of Spatial Concentration and Local Productivity 276
11.1 The Determinants of Spatial Concentration 277
11.2 The Determinants of Local Productivity 283
11.3 Concluding Remarks 300
11.4 Related Literature 301

CHAPTER 12: The Empirics of Economic Geography 302
12.1 A General Framework 303
12.2 Location of Firms 307
12.3 Home-Market Effect 314
12.4 Factor Prices and Economic Geography 321
12.5 Migrations 329
12.6 The Stability of Spatial Patterns 332
12.7 Concluding Remarks 340
12.8 Related Literature 342

CHAPTER 13: Theory with Numbers 343
13.1 Predictions Based on the Dixit-Stiglitz-Krugman Model 345
13.2 Simulations in an Estimated Model of the French Space-Economy 356
13.3 Concluding Remarks 363
13.4 Related Literature 364

CHAPTER 14: Concluding Remarks 365
14.1 The Paradox of the Global Village 365
14.2 The Objective of Economic Geography 367
14.3 What Have We Learned? 368
14.4 Where Next? 374

References 379
Index 397

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