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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 Spatial Economics Research Centre, LSE in its series SERC Discussion Papers with number 0012.

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Date of creation: Nov 2008
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Handle: RePEc:cep:sercdp:0012

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Web page: http://www.spatialeconomics.ac.uk/SERC/publications/default.asp

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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," CEIS Research Paper 171, Tor Vergata University, CEIS, revised 08 Nov 2010.
  2. Matthias Wrede, 2013. "Heterogeneous skills and homogeneous land: segmentation and agglomeration," Journal of Economic Geography, Oxford University Press, vol. 13(5), pages 767-798, September.
  3. Ottaviano, Gianmarco, 2012. "Agglomeration,Trade and Selection," CEPR Discussion Papers 9046, C.E.P.R. Discussion Papers.
  4. SATO Yasuhiro & TABUCHI Takatoshi & YAMAMOTO Kazuhiro, 2012. "Market Size and Entrepreneurship," Discussion papers 12002, Research Institute of Economy, Trade and Industry (RIETI).
  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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