"A Simple Model of City Crowdedness"
Federal Reserve Bank of Kansas City
FRB of Kansas City Working Paper No. RWP 04-12
Population density varies widely across U.S. cities. A calibrated general equilibrium model in which productivity and quality-of-life differ across locations can account for such variation. Individuals derive utility from consumption of a traded good, a nontraded good, leisure, and quality-of-life. The traded and nontraded goods are produced by combining mobile labor, mobile capital, and non-mobile land. An eight-fold increase in population density requires an approximate 50 percent productivity differential or an approximate 20 percent compensating differential. A thirty-two-fold increase in population density requires an approximate 95 percent productivity differential or a 33 percent compensating differential. Empirical evidence suggests productivity and quality-of-life differentials of this magnitude are plausible. The model implies that broad-based technological progress can induce substantial migration to localities with high quality-of-life.
Number of Pages in PDF File: 37
Keywords: Population density, productivity, quality-of-life, compensating differentials, economic growth
JEL Classification: O400, O510, R110, R120working papers series
Date posted: January 14, 2005
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