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Survival of the Fittest in Cities: Agglomeration, Selection, and Polarisation

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  • Kristian Behrens
  • Frédéric Robert-Nicoud

Abstract

Empirical studies consistently report that labour productivity and TFP rise with city size. The reason is that cities attract the most productive agents, select the best of them, and make the selected ones even more productive via various agglomeration economies. This paper provides a microeconomically founded model of vertical city differentiation in which the latter two mechanisms (`agglomeration' and `selection') operate simultaneously. Our model is both rich and tractable enough to allow for a detailed investigation of when cities emerge, what determines their size, and how they interact through the channels of trade. We then uncover stylised facts and suggestive econometric evidence that are consistent with the most distinctive equilibrium features of our model. We show, in particular, that larger cities are both more productive and more unequal (`polarised'), that inter-city trade is associated with higher income inequalities, and that the proximity of large urban centres inhibits the development of nearby cities.

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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0894.

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Date of creation: Oct 2008
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Handle: RePEc:cep:cepdps:dp0894

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Keywords: entrepreneur heterogeneity; firm selection; agglomeration; income inequalities; urbanization; urban systems;

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  1. Papers of the Day
    by ryan in The bellows on 2009-10-05 20:30:01
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Cited by:
  1. Sabrina Di Addario & Daniela Vuri, 2010. "Entrepreneurship and market size. The case of young college graduates in Italy," Temi di discussione (Economic working papers) 775, Bank of Italy, Economic Research and International Relations Area.
  2. Yasuhiro Sato & Takatoshi Tabuchi & Kazuhiro Yamamoto, 2009. "Market Size and Entrepreneurship," Discussion Papers in Economics and Business 09-07, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  3. Ottaviano, Gianmarco I.P., 2012. "Agglomeration, trade and selection," Regional Science and Urban Economics, Elsevier, vol. 42(6), pages 987-997.
  4. Wrede, Matthias, 2012. "Heterogeneous skills and homogeneous land: Segmentation and agglomeration," IWQW Discussion Paper Series 04/2012, Friedrich-Alexander-Universität Erlangen-Nürnberg, Institut für Wirtschaftspolitik und Quantitative Wirtschaftsforschung (IWQW).
  5. Kristian Behrens & Frédéric Robert-Nicoud, 2009. "Survival of the Fittest in Cities: Agglomeration, Polarization, and Income Inequality," Cahiers de recherche 0919, CIRPEE.
  6. Fabien Candau & Marc Fleurbaey, 2011. "Agglomeration and Welfare with Heterogeneous Preferences," Open Economies Review, Springer, vol. 22(4), pages 685-708, September.

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