Survival of the Fittest in Cities: Agglomeration, Selection, and Polarisation

63 Pages Posted: 18 Dec 2008

See all articles by Kristian Behrens

Kristian Behrens

University of Quebec at Montreal (UQAM) - Department of Economics

Frederic Robert-Nicoud

University of Geneva - Department of Political Economics; Centre for Economic Policy Research (CEPR)

Date Written: October 2008

Abstract

Empirical studies consistently report that labour productivity and TFP rise with city size. The reason is that cities attract the most productive agents, select the best of them, and make the selected ones even more productive via various agglomeration economies. This paper provides a microeconomically founded model of vertical city differentiation in which the latter two mechanisms ('agglomeration' and 'selection') operate simultaneously. Our model is both rich and tractable enough to allow for a detailed investigation of when cities emerge, what determines their size, and how they interact through the channels of trade. We then uncover stylised facts and suggestive econometric evidence that are consistent with the most distinctive equilibrium features of our model. We show, in particular, that larger cities are both more productive and more unequal ('polarised'), that inter-city trade is associated with higher income inequalities, and that the proximity of large urban centres inhibits the development of nearby cities.

Keywords: agglomeration, entrepreneur heterogeneity, firm selection, income inequalities, urban systems, urbanization

JEL Classification: F12, R12

Suggested Citation

Behrens, Kristian and Robert-Nicoud, Frederic L., Survival of the Fittest in Cities: Agglomeration, Selection, and Polarisation (October 2008). CEPR Discussion Paper No. DP7018. Available at SSRN: https://ssrn.com/abstract=1311142

Kristian Behrens

University of Quebec at Montreal (UQAM) - Department of Economics ( email )

P.O. Box 8888, Downtown Station
Montreal, Quebec H3C 3P8
Canada

Frederic L. Robert-Nicoud (Contact Author)

University of Geneva - Department of Political Economics ( email )

40, boulevard du Pont-d'Arve
Geneva 4, CH-1211
Switzerland
+41 22 379 8272 (Phone)
+41 22 379 8293 (Fax)

HOME PAGE: http://www.unige.ch/ses/ecopo/staff/robert/home.html

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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