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Workings of a City: Location, Education, and Production

  • Roland Benabou

We examine the implications of local externalities in human capital investment for the size and composition of the productive labor force. The model links residential choice, skills acquisition, and production in a city composed of several communities. Peer effects induce self-segregation by occupation, whereas efficiency may require identical communities. Even when some asymmetry is optimal, equilibrium segregation can cause entire 'ghettos" to drop out of the labor force. Underemployment is more extensive. the easier it is for high-skill workers to isolate themselves from others. When perfect segregation is feasible, individual incentives to pursue it are self-defeating, and lead instead to a shutdown of the productive sector.

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File URL: http://www.nber.org/papers/t0113.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Technical Working Papers with number 0113.

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Date of creation: Oct 1991
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Publication status: published as The Quarterly Journal of Economics, vol cviii, Issue 3, August 1993, (MIT Press, Cambridge) p. 619 Quarterly Journal of Economics, 108, (1993), p. 619-652
Handle: RePEc:nbr:nberte:0113
Note: PE
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  1. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
  2. Berglas, Eitan, 1976. "Distribution of tastes and skills and the provision of local public goods," Journal of Public Economics, Elsevier, vol. 6(4), pages 409-423, November.
  3. Galor, Oded & Zeira, Joseph, 1988. "Income Distribution and Macroeconomics," MPRA Paper 51644, University Library of Munich, Germany, revised 01 Sep 1989.
  4. Brueckner, Jan K. & Lee, Kangoh, 1989. "Club theory with a peer-group effect," Regional Science and Urban Economics, Elsevier, vol. 19(3), pages 399-420, August.
  5. Dynarski, Mark & Schwab, Robert & Zampelli, Ernest, 1989. "Local characteristics and public production: The case of education," Journal of Urban Economics, Elsevier, vol. 26(2), pages 250-263, September.
  6. Glaeser, Edward L & Hedi D. Kallal & Jose A. Scheinkman & Andrei Shleifer, 1992. "Growth in Cities," Journal of Political Economy, University of Chicago Press, vol. 100(6), pages 1126-52, December.
    • Edward L. Glaeser & Hedi D. Kallal & Jose A. Scheinkman & Andrei Shleifer, 1991. "Growth in Cities," NBER Working Papers 3787, National Bureau of Economic Research, Inc.
    • Glaeser, Edward Ludwig & Kallal, Hedi D. & Scheinkman, Jose A. & Shleifer, Andrei, 1992. "Growth in Cities," Scholarly Articles 3451309, Harvard University Department of Economics.
  7. Richard Arnott & John Rowse, 1982. "Peer Group Effects and Educational Attainment," Working Papers 497, Queen's University, Department of Economics.
  8. Loury, Glenn C, 1981. "Intergenerational Transfers and the Distribution of Earnings," Econometrica, Econometric Society, vol. 49(4), pages 843-67, June.
  9. Glenn C. Loury, 1976. "A Dynamic Theory of Racial Income Differences," Discussion Papers 225, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  10. Summers, Anita A & Wolfe, Barbara L, 1977. "Do Schools Make a Difference?," American Economic Review, American Economic Association, vol. 67(4), pages 639-52, September.
  11. Banerjee, A.V. & Besley, T., 1990. "Peer Group Externalities And The Learning Incentives: A Theory Of Nerd Behavior," Papers 68, Princeton, Woodrow Wilson School - Discussion Paper.
  12. Henderson, Vernon & Mieszkowski, Peter & Sauvageau, Yvon, 1978. "Peer group effects and educational production functions," Journal of Public Economics, Elsevier, vol. 10(1), pages 97-106, August.
  13. Miyao, Takahiro, 1978. "Dynamic Instability of a Mixed City in the Presence of Neighborhood Externalities," American Economic Review, American Economic Association, vol. 68(3), pages 454-63, June.
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