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LOCATIONAL SIGNALING AND AGGLOMERATION
Author(s) -
Berliant Marcus,
Yu ChiaMing
Publication year - 2015
Publication title -
journal of regional science
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.171
H-Index - 79
eISSN - 1467-9787
pISSN - 0022-4146
DOI - 10.1111/jors.12199
Subject(s) - productivity , economies of agglomeration , economics , core (optical fiber) , wage , marginal cost , marginal product , microeconomics , willingness to pay , labour economics , production (economics) , economic growth , materials science , composite material
Agglomeration can be caused by asymmetric information and a locational signaling effect: The location choice of workers signals their productivity to potential employers. The cost of a signal is the cost of housing at that location. When workers' marginal willingness to pay for housing is negatively correlated with their productivity, only the core‐periphery (partially stratified) equilibria are stable. When workers' marginal willingness to pay for housing and their productivity are positively correlated, there is no core‐periphery equilibrium. The urban wage premium is explained when there is a core‐periphery equilibrium. Furthermore, location can at best be an approximate rather than a precise sieve for high‐skill workers.