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Survival of the Fittest in Cities: Agglomeration, Polarization, and Income Inequality

  • Kristian Behrens
  • Frédéric Robert-Nicoud

Using a large sample of US urban areas, we provide systematic evidence that mean household income rises with city ('agglomeration'), that this effect is stronger for the top of the income distribution ('polarization'), and that household income inequality increases at a decreasing rate in city size ('inequality'). To account simultaneously for these facts, we develop a microfounded model of endogenous city formation in which urban centres select the most productive agents. Income inequality is driven by both the 'poverty' and the 'superstar' margins: whereas the least productive agents fail in a tougher urban environment, which increases 'poverty', the most productive agents become 'superstars' who reap the benefits from a larger urban market. At equilibrium, the returns to skills are increasing in city size, thereby dilating the income distribution. Our model is both rich and tractable enough to allow for a detailed investigation of when cities emerge, what determines their size, how they interact through the channels of trade, and how inter-city trade influences intra-city income inequality.

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Paper provided by CIRPEE in its series Cahiers de recherche with number 0919.

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Date of creation: 2009
Date of revision:
Handle: RePEc:lvl:lacicr:0919
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  1. Berry, Christopher R. & Glaeser, Edward L., 2005. "Divergence of Human Capital Levels across Cities," Working Paper Series rwp05-057, Harvard University, John F. Kennedy School of Government.
  2. Mark D. Partridge & Dan S. Rickman & Kamar Ali & M. Rose Olfert, 2009. "Do New Economic Geography agglomeration shadows underlie current population dynamics across the urban hierarchy?," Papers in Regional Science, Wiley Blackwell, vol. 88(2), pages 445-466, 06.
  3. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
  4. Guy Michaels & Ferdinand Rauch & Stephen Redding, 2008. "Urbanisation and Structural Transformation," CEP Discussion Papers dp0892, Centre for Economic Performance, LSE.
  5. Pierre Philippe Combes & Gilles Duranton & Laurent Gobillon & Diego Puga & Sébastien Roux, 2009. "The productivity advantages of large cities: Distinguishing agglomeration from firm selection," Working Papers 2009-02, Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales, revised 30 Nov 2010.
  6. Keith Head & Thierry Mayer, 2004. "The Empirics of Agglomeration and Trade," Post-Print hal-01027789, HAL.
  7. Edward L. Glaeser, 1998. "Are Cities Dying?," Journal of Economic Perspectives, American Economic Association, vol. 12(2), pages 139-160, Spring.
  8. Duranton, Gilles & Puga, Diego, 2001. "From Sectoral to Functional Urban Specialization," CEPR Discussion Papers 2971, C.E.P.R. Discussion Papers.
  9. OTTAVIANO, Gianmarco & TABUCHI , Takatoshi & THISSE, Jacques-François, . "Agglomeration and trade revisited," CORE Discussion Papers RP 1553, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  10. Giordano Mion & Paolo Naticchioni, 2009. "The spatial sorting and matching of skills and firms," Canadian Journal of Economics, Canadian Economics Association, vol. 42(1), pages 28-55, February.
  11. Edward L. Glaeser, Jed Kolko, and Albert Saiz, 2001. "Consumer city," Journal of Economic Geography, Oxford University Press, vol. 1(1), pages 27-50, January.
  12. Rosenthal, Stuart S. & Strange, William C., 2004. "Evidence on the nature and sources of agglomeration economies," Handbook of Regional and Urban Economics, in: J. V. Henderson & J. F. Thisse (ed.), Handbook of Regional and Urban Economics, edition 1, volume 4, chapter 49, pages 2119-2171 Elsevier.
  13. Baldwin, Richard E., 2001. "Core-periphery model with forward-looking expectations," Regional Science and Urban Economics, Elsevier, vol. 31(1), pages 21-49, February.
  14. Marcus Asplund & Volker Nocke, 2003. "Firm Turnover in Imperfectly Competitive Markets," PIER Working Paper Archive 03-010, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  15. Marc J. Melitz & Gianmarco I.P. Ottaviano, 2005. "Market Size, Trade, and Productivity," NBER Working Papers 11393, National Bureau of Economic Research, Inc.
  16. Giles Duranton & Diego Puga, 2003. "Micro-Foundations of Urban Agglomeration Economies," NBER Working Papers 9931, National Bureau of Economic Research, Inc.
  17. Tabuchi, Takatoshi & Thisse, Jacques-François & Zeng, Dao-Zhi, 2002. "On the Number and Size of Cities," CEPR Discussion Papers 3386, C.E.P.R. Discussion Papers.
  18. Rosen, Sherwin, 1981. "The Economics of Superstars," American Economic Review, American Economic Association, vol. 71(5), pages 845-58, December.
  19. Kristian Behrens & Frédéric Robert-Nicoud, 2008. "Survival of the Fittest in Cities: Agglomeration, Selection and Polarisation," SERC Discussion Papers 0012, Spatial Economics Research Centre, LSE.
  20. Glaeser, Edward L & Mare, David C, 2001. "Cities and Skills," Journal of Labor Economics, University of Chicago Press, vol. 19(2), pages 316-42, April.
  21. Long, James E & Rasmussen, David W & Haworth, Charles T, 1977. "Income Inequality and City Size," The Review of Economics and Statistics, MIT Press, vol. 59(2), pages 244-46, May.
  22. Combes, Pierre-Philippe & Duranton, Gilles & Gobillon, Laurent, 2004. "Spatial Wage Disparities: Sorting Matters!," CEPR Discussion Papers 4240, C.E.P.R. Discussion Papers.
  23. Christopher R. Berry & Edward L. Glaeser, 2005. "The Divergence of Human Capital Levels Across Cities," NBER Working Papers 11617, National Bureau of Economic Research, Inc.
  24. Gilles Duranton & Matthew A. Turner, 2007. "Urban growth and transportation," Working Papers tecipa-305, University of Toronto, Department of Economics.
  25. Robert E. Lucas & Esteban Rossi-Hansberg, 2002. "On the Internal Structure of Cities," Econometrica, Econometric Society, vol. 70(4), pages 1445-1476, July.
  26. Christopher R. Berry & Edward L. Glaeser, 2005. "The Divergence of Human Capital Levels across Cities," Harvard Institute of Economic Research Working Papers 2091, Harvard - Institute of Economic Research.
  27. repec:oup:restud:v:73:y:2006:i:2:p:295-327 is not listed on IDEAS
  28. Bacolod, Marigee & Blum, Bernardo S. & Strange, William C., 2009. "Skills in the city," Journal of Urban Economics, Elsevier, vol. 65(2), pages 136-153, March.
  29. Wheeler, Christopher H, 2001. "Search, Sorting, and Urban Agglomeration," Journal of Labor Economics, University of Chicago Press, vol. 19(4), pages 879-99, October.
  30. Volker Nocke, 2003. "A Gap for Me: Entrepreneurs and Entry," PIER Working Paper Archive 05-026, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 29 Sep 2005.
  31. Nord, Stephen, 1980. "Income Inequality and City Size: An Examination of Alternative Hypotheses for Large and Small Cities," The Review of Economics and Statistics, MIT Press, vol. 62(4), pages 502-08, November.
  32. Okubo, Toshihiro, 2009. "Trade liberalisation and agglomeration with firm heterogeneity: Forward and backward linkages," Regional Science and Urban Economics, Elsevier, vol. 39(5), pages 530-541, September.
  33. repec:oup:restud:v:73:y:2006:i:3:p:549-576 is not listed on IDEAS
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