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Labor differentiation and agglomeration in general equilibrium

  • Berliant, Marcus
  • Zenou, Yves

The aim of this paper is to explore the structure of cities as a function of labor differentiation, gains to trade, a fixed cost for constructing the transportation network, a variable cost of commodity transport, and the commuting costs of consumers. Firms use different types of labor to produce different outputs. Locations of all agents are endogenous as are prices and quantities. This is among the first papers to apply smooth economy techniques to urban economics. Existence of equilibrium and its determinacy properties depend crucially on the relative numbers of outputs, types of labor and firms. More differentiated labor implies more equilibria. We provide tight lower bounds on labor differentiation for existence of equilibrium. If these sufficient conditions are satisfied, then generically there is a continuum of equilibria for given parameter values. Finally, an equilibrium allocation is not necessarily Pareto optimal in this model.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 36207.

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Date of creation: 26 Jan 2012
Date of revision:
Handle: RePEc:pra:mprapa:36207
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  1. repec:cup:cbooks:9780521265140 is not listed on IDEAS
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  6. Marcus Berliant & Fan- chin Kung, 2004. "The Indeterminacy of Equilibrium City Formation under Monopolistic Competition and Increasing Returns," Urban/Regional 0407011, EconWPA, revised 29 Apr 2005.
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