DP4062 Microfoundations of Urban Agglomeration Economies

Author(s): Gilles Duranton, Diego Puga
Publication Date: September 2003
Keyword(s): agglomeration, cities, increasing returns, micro-foundations
JEL(s): R12, R13, R32
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=4062

This Paper studies the theoretical micro-foundations of urban agglomeration economies. We distinguish three types of micro-foundations, based on sharing, matching, and learning mechanisms. For each of these three categories, we develop one or more core models in detail and discuss the literature in relation to those models. This allows us to give a precise characterization of some of the main theoretical underpinnings of urban agglomeration economies, to discuss modeling issues that arise when working with these tools, and to compare different sources of agglomeration economies in terms of the aggregate urban outcomes they produce as well as in terms of their normative implications.