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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
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Handle: RePEc:lvl:lacicr:0919
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  1. Marcus Asplund & Volker Nocke, 2006. "Firm Turnover in Imperfectly Competitive Markets -super-1," Review of Economic Studies, Oxford University Press, vol. 73(2), pages 295-327.
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  3. 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.
  4. 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).
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  6. Giordano Mion & Paolo Naticchioni, 2009. "The spatial sorting and matching of skills and firms," LSE Research Online Documents on Economics 42670, London School of Economics and Political Science, LSE Library.
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  17. Wheeler, Christopher H, 2001. "Search, Sorting, and Urban Agglomeration," Journal of Labor Economics, University of Chicago Press, vol. 19(4), pages 879-99, October.
  18. Gilles Duranton & Matthew A. Turner, 2012. "Urban Growth and Transportation," Review of Economic Studies, Oxford University Press, vol. 79(4), pages 1407-1440.
  19. 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.
  20. 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.
  21. Mark D. Partridge & Dan S. Rickman & Kamar Ali & M. Rose Olfert, 2007. "Do New Economic Geography Agglomeration Shadows Underlie Current Population Dynamics across the Urban Hierarchy?," Economics Working Paper Series 0708, Oklahoma State University, Department of Economics and Legal Studies in Business.
  22. Volker Nocke, 2003. "A Gap for Me: Entrepreneurs and Entry," PIER Working Paper Archive 03-019, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  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. 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.
  25. Baldwin, Richard E., 2001. "Core-periphery model with forward-looking expectations," Regional Science and Urban Economics, Elsevier, vol. 31(1), pages 21-49, February.
  26. 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.
  27. Edward L. Glaeser, 1998. "Are Cities Dying?," Journal of Economic Perspectives, American Economic Association, vol. 12(2), pages 139-160, Spring.
  28. 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.
  29. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-99, June.
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  33. 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.
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