Locational signaling and agglomeration

Berliant, Marcus and Chia-Ming, Yu (2014): Locational signaling and agglomeration.

Abstract

Agglomeration can be caused by asymmetric information and a locational signaling effect: The location choice of workers signals their productivity to potential employers. The cost of a signal is the cost of housing at that location. When workers' marginal willingness to pay for housing is negatively correlated with their productivity, only the core-periphery (partially stratified) equilibria are stable. When workers' marginal willingness to pay for housing and their productivity are positively correlated, there is no core-periphery equilibrium. The urban wage premium is explained when there is core-periphery equilibrium. Furthermore, location can at best be an approximate rather than a precise sieve for high-skill workers.

• Item Type: MPRA Paper
• Language: English
• Keywords: Agglomeration; Adverse Selection; Asymmetric Information; Locational Signaling
• Subjects: D - Microeconomics > D5 - General Equilibrium and Disequilibrium > D51 - Exchange and Production 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 > R13 - General Equilibrium and Welfare Economic Analysis of Regional Economies

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