Learning in cities

Alfred Marshall argues that industrial agglomerations exist in part because individuals learn from each other when they live and work in close proximity, and increasing amounts of evidence confirms this. This paper formalizes Marshall's theory in a model where individuals acquire skills by interacting with one another, and dense urban areas increase the speed of interactions. The model predicts that cities will have a higher mean and higher variance of skills, and will attract young people who are not too risk averse and who benefit most from learning (e.g., more patient people). Urbanization will rise when the returns to skills rise, when the ability to learn by imitation rises, and when the level of health in the economy rises. (C) 1999 Academic Press.