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Discussion Paper Details

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Title: Labour Specialization and City Formation

Author(s): Marcus Berliant and Yves Zenou

Publication Date: November 1995

Keyword(s): Endogenous City Formation, General Equilibrium, Labour Specialization and Transportation Network

Programme Area(s): International Trade and Regional Economics

Abstract: This paper explores the formation of cities through labour specialization, gains to trade, a fixed cost for the transportation network, imperfect competition between firms, and the commuting costs of consumers. The model uses a very general setting, allowing a multidimensional location space and multiple firms using different types of labour to produce different outputs. Locations of all agents are endogenous as are prices and quantities. Firms play a Nash location game among themselves, anticipating the locations of consumers, but taking prices as given. Within this framework, we characterize the spatial configuration of firms in equilibrium. Whether or not equilibrium exists and whether or not it is locally unique depends crucially on the relative numbers of outputs, types of labour and firms. Finally, both welfare theorems fail in this model.

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Bibliographic Reference

Berliant, M and Zenou, Y. 1995. 'Labour Specialization and City Formation'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=1270