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Locational signaling and agglomeration

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  • Berliant, Marcus
  • Yu, Chia-Ming

Abstract

Agglomeration can be caused by asymmetric information and a locational signaling effect: The location choice of workers signals their productivity to potential employers. The cost of a signal is the cost of housing at a location. When workers’ price elasticity of demand for housing is negatively correlated with their productivity, skill-biased technological change causes a core-periphery bifurcation where the agglomeration of high-skill workers eventually constitutes a unique stable equilibrium. When workers’ price elasticity of demand for housing and their productivity are positively correlated, skill-biased technological improvements will never result in a core periphery equilibrium. This paper claims that location can at best be an approximate rather than a precise sieve for high-skill workers.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 19462.

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Date of creation: 19 Dec 2009
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Handle: RePEc:pra:mprapa:19462

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Keywords: Agglomeration; Adverse Selection; Asymmetric Information; Locational Signaling;

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