Labor differentiation and agglomeration in general equilibrium

Marcus Berliant, Yves Zenou

Research output: Contribution to journalArticleResearchpeer-review

Abstract

The aim of this article is to explore the structure of cities as a function of labor differentiation, gains to trade, a fixed cost for constructing the transportation network, a variable cost of commodity transport, and the commuting costs of consumers. Firms use different types of labor to produce different outputs. Locations of all agents are endogenous as are prices and quantities. This is among the first articles to apply smooth economy techniques to urban economics. Existence of equilibrium and its determinacy properties depend crucially on the relative numbers of outputs, types of labor, and firms. More differentiated labor implies more equilibria. We provide tight lower bounds on labor differentiation for existence of equilibrium. If these sufficient conditions are satisfied, then generically there is a continuum of equilibria for given parameter values. Finally, an equilibrium allocation is not necessarily Pareto optimal in this model.
Original languageEnglish
Pages (from-to)36-65
Number of pages30
JournalInternational Regional Science Review
Volume37
Issue number1
DOIs
Publication statusPublished - 2014
Externally publishedYes

Keywords

  • city structure
  • heterogeneous labor
  • transportation network
  • general equilibrium

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