Locational signaling and agglomeration

Berliant, Marcus and Yu, Chia-Ming (2009): 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 a location. When workers’ price elasticity of demand for housing is negatively correlated with their productivity, skill-biased technological change causes a core-periphery bifurcation where the agglomeration of high-skill workers eventually constitutes a unique stable equilibrium. When workers’ price elasticity of demand for housing and their productivity are positively correlated, skill-biased technological improvements will never result in a core periphery equilibrium. This paper claims that 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: 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; D - Microeconomics > D5 - General Equilibrium and Disequilibrium > D51 - Exchange and Production Economies

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