Workings of a City: Location, Education, and Production

Roland Benabou

No 113, NBER Technical Working Papers from National Bureau of Economic Research, Inc

Abstract: We examine the implications of local externalities in human capital investment for the size and composition of the productive labor force. The model links residential choice, skills acquisition, and production in a city composed of several communities. Peer effects induce self-segregation by occupation, whereas efficiency may require identical communities. Even when some asymmetry is optimal, equilibrium segregation can cause entire 'ghettos" to drop out of the labor force. Underemployment is more extensive. the easier it is for high-skill workers to isolate themselves from others. When perfect segregation is feasible, individual incentives to pursue it are self-defeating, and lead instead to a shutdown of the productive sector.

Date: 1991-10
Note: PE
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Published as The Quarterly Journal of Economics, vol cviii, Issue 3, August 1993, (MIT Press, Cambridge) p. 619 Quarterly Journal of Economics, 108, (1993), p. 619-652

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Journal Article: Workings of a City: Location, Education, and Production (1993)
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