DP8067 Productivity in Cities: Self-Selection and Sorting

Author(s): Anthony Venables
Publication Date: October 2010
Keyword(s): city, economic geography, productivity, self-selection, sorting, urban
JEL(s): R0, R1
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=8067

Productivity is high in cities partly because the urban environment acts as a self-selection mechanism. If workers have imperfect information about the quality of workers with whom they match and matches take place within cities, then high-ability workers will choose to live and work in expensive cities. This self-selection improves the quality of matches in such cities. The mechanism may be reinforced by the development of informational networks in cities with a large proportion of high ability workers. As a consequence productivity in these cities is high for workers of all ability types.