DP7922 | Productive cities: Sorting, selection and agglomeration

Publication Date

01/07/2010

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Abstract

Large cities produce more output per capita than small cities. This may occur because more talented individuals sort into large cities, because large cities select more productive entrepreneurs and firms, or because of agglomeration economies. We develop a model of systems of cities that combines all three elements and suggests interesting complementarities between them. The model can replicate stylised facts about sorting, agglomeration, and selection in cities. It can also generate Zipf's law for cities. Finally, it provides a useful framework within which to reinterpret existing empirical evidence.