Berliant, Marcus and Kung, Fan-chin (2008): Can Information Asymmetry Cause Agglomeration?
Download (746kB) | Preview
The modern literature on city formation and development, for example the New Economic Geography literature, has studied the agglomeration of agents in size or mass. We investigate agglomeration in sorting or by type of worker, that implies agglomeration in size when worker populations differ by type. This kind of agglomeration can be driven by asymmetric information in the labor market, specifically when firms do not know if a particular worker is of high or low skill. In a model with two types and two regions, workers of different skill levels are offered separating contracts in equilibrium. When mobile low skill worker population rises or there is technological change that favors high skilled workers, integration of both types of workers in the same region at equilibrium becomes unstable, whereas sorting of worker types into different regions in equilibrium remains stable. The instability of integrated equilibria results from firms, in the region to which workers are perturbed, offering attractive contracts to low skill workers when there is a mixture of workers in the region of origin.
|Item Type:||MPRA Paper|
|Original Title:||Can Information Asymmetry Cause Agglomeration?|
|Keywords:||Adverse Selection; Agglomeration|
|Subjects:||R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R1 - General Regional Economics > R13 - General Equilibrium and Welfare Economic Analysis of Regional Economies
D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information; Mechanism Design
R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R1 - General Regional Economics > R12 - Size and Spatial Distributions of Regional Economic Activity
|Depositing User:||Marcus Berliant|
|Date Deposited:||02. Mar 2008 18:33|
|Last Modified:||19. Feb 2013 19:09|
Abdel-Rahman, H., 1988, Product differentiation, monopolistic competition and city size, Regional Science and Urban Economics 18, 69-86. Abdel-Rahman, H., 1990, Sharable inputs, product variety and city sizes, Journal of Regional Science 30, 359-374. Abdel-Rahman, H. and M. Fujita, 1990, Product variety, Marshallian externalities, and city sizes, Journal of Regional Science 30, 165-183. Acemoglu, D., 1999, Changes in unemployment and wage inequality: An alternative theory and some evidence, American Economic Review 89, 1259-1278. Berman, E., J. Bound, Z. Griliches, 1994, Changes in the demand for skilled labor within U.S. manufacturing industries: Evidence from the annual survey of manufacturing, Quarterly Journal of Economics 108, 367-398. Berry, C.R. and E.L. Glaeser, 2005, The divergence of human capital levels across cities, Papers in Regional Science 84, 407-444. Blum, B., Bacolod, M. and W. Strange, 2006, Hard skills, soft skills and agglomeration: A hedonic approach to the urban wage premium. Paper presented at the 53rd Annual North American Meetings of the Regional Science Association International in Toronto. Caselli, F. 1999, Technological revolutions, American Economic Review 89, 78-102. Combes, P.-P., Duranton, G. and L. Gobillon, 2006, Spatial wage disparities: Sorting matters!, working paper. DeCoster, G.P. and W.C. Strange, 1993, Spurious agglomeration, Journal of Urban Economics 33, 273-304. Ellison, G. and E. Glaeser, 1997, Geographic concentration of U.S. manufacturing industries: A dartboard approach, Journal of Political Economy 105, 889-927. Ellison, G. and E. Glaeser, 1999, The geographic concentration of industry: Does natural advantage explain agglomeration?, American Economic Review 89, 311-316. Fang, H., 2001, Social culture and economic performance, American Economic Review 91, 924-937. Fujita, M., 1986, Urban land use theory, in Location Theory. Edited by J. Lesourne and H. Sonnenschein. New York: Harwood Academic Publishers. Fujita, M., 1988, A monopolistic competition model of spatial agglomeration: Differentiated product approach, Regional Science and Urban Economics 18, 87-124. Fujita, M. and T. Mori, 1997, Structural stability and evolution of urban systems, Regional Science and Urban Economics 27, 399-442. Fujita, M. and J.-F. Thisse, 2002, Economics of Agglomeration. Cambridge: Cambridge University Press. Fujita, M., Krugman, P. and A.J. Venables, 1999, The Spatial Economy. Cambridge: The MIT Press. Hunt, R.M., 2005, A century of consumer credit reporting in America, Working paper no. 05-13, Research Department, Federal Reserve Bank of Philadelphia. Konishi, H., 2006, Tiebout's Tale in Spatial Economies: Entrepreneurship, Self-Selection, and Efficiency. http://fmwww.bc.edu/EC-P/WP655.pdf Krugman, P., 1991, Increasing returns and economic geography, Journal of Political Economy 99, 483-499. Landeras, P. and J.M. Perez de Villerreal, 2005, A noisy screening model of education, Labour 19, 35-54. Mills, E.S., 1967, An aggregative model of resource allocation in a metropolitan area, American Economic Review 57, 197-210. Mori, T. and A. Turrini, 2005, Skills, agglomeration and segmentation, European Economic Review 49, 201-225. Starrett, D., 1978, Market allocations of location choice in a model with free mobility, Journal of Economic Theory 17, 21-37. U.S. Department of Commerce, 1975, Historical Statistics of the United States: Colonial Times to 1970 Part 1. Washington, DC: Bureau of the Census, U.S. Department of Commerce.