Search and the City

Tinbergen Inst. Discussion Paper No. 02-061/3

54 Pages Posted: 23 Jul 2002

See all articles by Coen N. Teulings

Coen N. Teulings

University of Amsterdam; University of Cambridge

Pieter A. Gautier

Free University of Amsterdam; Tinbergen Institute Amsterdam (TIA); IZA Institute of Labor Economics

Date Written: June 14, 2002

Abstract

Can increasing returns to scale in search explain regional differentiation between cities and rural areas? To answer this question, we develop a model of an economy that consists of several regions. Within each region, jobs and workers are heterogeneous by respectively skill and job complexity type. Because of the search frictions, firms and workers in each region must trade-off a better expected match quality against a longer period of non-production. Labor mobility between regions induces the equalization of reservation wages for each skin type and interregional trade of end products yields regional specialization in production. The model predicts that high density areas make use of their scale advantage by producing end products with a high dispersion of skin requirements. Empirical evidence for the United States corroborates the implications of the model.

Keywords: Search, assignment, new regional economics, agglomeration

JEL Classification: D4, J6, R3

Suggested Citation

Teulings, Coen N. and Gautier, Pieter A., Search and the City (June 14, 2002). Tinbergen Inst. Discussion Paper No. 02-061/3, Available at SSRN: https://ssrn.com/abstract=317961 or http://dx.doi.org/10.2139/ssrn.317961

Coen N. Teulings (Contact Author)

University of Amsterdam ( email )

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University of Cambridge ( email )

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Cambridge, CB2 1TN
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Pieter A. Gautier

Free University of Amsterdam ( email )

Amsterdam, ND North Holland
Netherlands

Tinbergen Institute Amsterdam (TIA) ( email )

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IZA Institute of Labor Economics

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Germany