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Title: Labor Differentiation and Agglomeration in General Equilibrium

Author(s): Marcus Berliant and Yves Zenou

Publication Date: February 2012

Keyword(s): city structure, general equilibrium, heterogeneous labour and transportation network

Programme Area(s): International Trade and Regional Economics and Labour Economics

Abstract: The aim of this paper 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 papers 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.

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Bibliographic Reference

Berliant, M and Zenou, Y. 2012. 'Labor Differentiation and Agglomeration in General Equilibrium'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=8840