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Labor Differentiation and Agglomeration in General Equilibrium

  • Marcus Berliant

    (Washington University in St. Louis)

  • Yves Zenou

    (University of Southampton)

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. To our knowledege, this is the first paper that applies 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 EconWPA in its series Urban/Regional with number 0408003.

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Length: 50 pages
Date of creation: 10 Aug 2004
Date of revision:
Handle: RePEc:wpa:wuwpur:0408003
Note: Type of Document - pdf; pages: 50
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