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Survival of the Fittest in Cities: Urbanisation and Inequality

Listed author(s):
  • Kristian Behrens
  • Frédéric Robert‐Nicoud

We develop a framework that integrates natural advantage, agglomeration economies, and firm selection to explain why large cities are both more productive and more unequal than small towns. Our model highlights interesting complementarities among those factors and it matches a number of key stylised facts about cities. A larger city size increases productivity via a selection process, and higher urban productivity provides incentives for rural-urban migration. Tougher selection increases both the returns to skills and earnings inequality in cities. We numerically illustrate a multi-city version of the model and explore the formation of new cities, the growth of existing cities, and changes in income inequality.

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File URL: http://hdl.handle.net/10.1111/ecoj.2014.124.issue-581
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Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 124 (2014)
Issue (Month): 581 (December)
Pages: 1371-1400

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Handle: RePEc:wly:econjl:v:124:y:2014:i:581:p:1371-1400
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