Full Citation

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

Citation Type: Working Paper

Publication Year: 2009

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Abstract: Using a large sample of US urban areas, we provide systematic evidence that mean household income rises with city size (agglomeration), that this effect is stronger for the top of the income distribution (polarization), and that household income inequality increases at a decreasing rate in city size (inequality). To account simultaneously for these facts, we develop a microfounded model of endogenous city formation in which urban centres select the most productive agents. Income inequality is driven by both the poverty and the superstar margins: whereas the least productives agents fail in a thougher urban environment, which increases poverty, the most productive agentsbecome superstars who reap the benefits from a larger urban market. At equilibrium, the returns to skills are increasing in city size, thereby dilating the income distribution. Our model is both rich and tractable enough to allow for a detailed investigation of when cities emerge, what determines their size, how they interact through the channels of trade, and how inter-city trade influences intra-city income inequality.

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Authors: Robert-Nicoud, Frdric; Behrens, Kristian

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Publication Number: CP7018

Institution: Centre Interuniversitaire sur le Risque, les Politiques Economiques et l'Emploi

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Data Collections: IPUMS USA

Topics: Labor Force and Occupational Structure, Poverty and Welfare

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