The optimal distribution of population across cities

Albouy, David; Behrens, Kristian; Robert‐Nicoud, Frédéric; Seegert, Nathan

doi:10.1016/j.jue.2018.08.004

Cited by 55 publications

(56 citation statements)

References 68 publications

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“…Our derivation of optimal policy thus generalizes that of Fajgelbaum and Gaubert (2018) in an environment with input-output linkages and where trade is differentially costly across industries. Two other recent papers that discuss the optimal distribution of city sizes are Eeckhout and Guner (2015) and Albouy et al (2019).…”

Section: Introductionmentioning

confidence: 99%

Cognitive Hubs and Spatial Redistribution

Rossi‐Hansberg¹,

Sarte²,

Schwartzman³

2019

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In the U.S., cognitive non-routine (CNR) occupations associated with higher wages are disproportionately represented in larger cities. To study the allocation of workers across cities, we propose and quantify a spatial equilibrium model with multiple industries that employ CNR and alternative (non-CNR) occupations. Productivity is city-industry-occupation specific and partly determined by externalities across local workers. We estimate that the productivity of CNR workers in a city depends significantly on both its share of CNR workers and total employment. Together with heterogeneous preferences for locations, these externalities imply equilibrium allocations that are not efficient. An optimal policy that benefits workers equally across occupations incentivizes the formation of cognitive hubs, leading to larger fractions of CNR workers in some of today's largest cities. At the same time, these cities become smaller to mitigate congestion effects while cities that are initially small increase in size. Large and small cities end up expanding industries in which they already concentrate, while medium-size cities tend to diversify across industries. The optimal allocation thus features transfers to non-CNR workers who move from large to small cities consistent with the implied change in the industrial composition landscape. Finally, we show that the optimal policy reinforces equilibrium trends observed since 1980. However, these trends were in part driven by low growth in real-estate productivity in CNR-abundant cities that reduced welfare. * Preliminary draft. erossi@princeton.edu, pierre.sarte@rich.frb.org, felipe.schwartzman@rich.frb.org. We thank Mike Finnegan, Daniel Ober-Reynolds, and Jackson Evert for excellent research assistance. We also thank David Albouy for useful comments. The views expressed here are those of the authors and do not reflect those of the Federal Reserve Bank of Richmond or the Federal Reserve System. General city amenities that would be equally appealing to both occupations are unlikely to be a deciding factor in attracting the best workers to abundant cities. Indeed, we show that while real wages of CNR workers increase with a city's CNR intensity, real wages of non-CNR workers do not. Therefore, amenities alone are not driving the pattern of wages across space. For an alternative view, see Couture et al. (2018). 4 Specifically, we follow Jaimovich and Siu (2018), and define CNR occupations to include occupations with SOC-2 classifications 11 to 29 and non-CNR occupations to include SOC-2 classifications 35 to 55. 5 We include as control variables education, potential experience, race, gender, English proficiency, number of years in the U.S., marital status, having had a child in the last year, citizenship status, and veteran status. 6 In particular, suppose that technologies were similar across cities, and that the share of CNR workers were driven by the supply of those workers. Then, with decreasing marginal returns to worker type, increases in the relative supply of CNR workers wo...

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Section: Introductionmentioning

confidence: 99%

Cognitive Hubs and Spatial Redistribution

Rossi‐Hansberg¹,

Sarte²,

Schwartzman³

2019

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“…A related strand of literature also casts doubt on the use of regional policies that encourage firms to relocate in lagging regions, arguing instead that large cities are not large enough, and if anything, placebased policies should be targeted towards improving growth in the largest cities (Gaubert, 2015;Albouy et al, 2016). Like many externalities, firms do not internalize the productivity spillovers they generate for other firms when they choose an industrial location, and consequently, in equilibrium they tend to locate in cities that are smaller than socially optimal.…”

Section: Resultsmentioning

confidence: 99%

“…2 Moreover, if firms are heterogeneous in productivity, place-based policies to subsidize firms in the poorest regions may be attracting the least productive firms, exacerbating the problem of productivity spillovers by creating vicious circles, instead of virtuous circles (Gaubert, 2015). Instead of encouraging firms to locate in remote areas, it may be more optimal to reduce land rents and barriers to growth in the largest cities (Albouy et al, 2016). This paper contributes to the literature on evaluations of place-based policies by providing more evidence on their impacts in a developing country setting, where possibly the productivity spillover rationale for the effectiveness of place-based policies is most salient.…”

Section: Introductionmentioning

confidence: 99%

When Regional Policies Fail: An Evaluation of Indonesia's Integrated Economic Development Zones

Rothenberg¹,

Bazzi²,

Nataraj³

et al. 2017

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“…Abdel‐Rahman and Anas () provide an overview of the systems of cities research. More recent research in this line includes work by Albouy, Behrens, Robert‐Nicoud, and Seegert (). These authors construct a Henderson‐type model, but depart from the norm by allowing heterogeneous city sites and the inclusion of various fiscal instruments, such as housing costs and federal taxes.…”

Section: Literature Reviewmentioning

confidence: 99%

City formation with complex landscapes

Fain

2017

Intell Sys Acc Fin Mgmt

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Summary Using simulation methods I explore some of the properties of the new economic geography model using a complex landscape. I introduce landscape complexity by allowing the existence of limited pathways that can be traversed at a lower cost than most other paths. I also introduce a river that may be crossed at limited points and may be used to transport goods. I find that adding complexity substantially alters how many cities form and where they form. Compared with a simple landscape, complex landscapes produce a distribution of city sizes that more closely resemble the actual distribution of city sizes.

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The optimal distribution of population across cities

Abstract: This paper merges and supersedes Albouy and Seegert (2012) and Behrens and Robert-Nicoud's (2014) pieces. We are grateful to Vernon Henderson for his detailed and extremely valuable comments. We are also grateful to Costas Arkolakis,

Cited by 55 publications

References 68 publications

Cognitive Hubs and Spatial Redistribution

Cognitive Hubs and Spatial Redistribution

When Regional Policies Fail: An Evaluation of Indonesia's Integrated Economic Development Zones

City formation with complex landscapes

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