“Are Big Cities Bad Places to Live?,” D. Albouy (2012)

A Fine Theorem

Are certain cities nice places to live, “consumer cities” in the words of Ed Glaeser, or are they Dickensian, crime-filled hubs useful solely for their aggregation externalities on the production side? Economists have, no surprise, tried to solve that debate. On the one hand, if cities were so great, then why are wages so high, even for unskilled labor? Surely this is a sign that workers are being paid extra to cover the disutility they face from living in a city. On the other hand, if cities were so awful, then why is residential land so expensive? Surely, workers are only willing to pay a premium for an identical house if they enjoy its location.

Economics helps sort out the puzzle. Assume workers can take a job in any city they wish. In equilibrium, their utility, including the utility they receive from non-market quality of life factors, must equate across…

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