Firms are more productive on average in larger cities. Two explanations have been offered: agglomeration economies … selection model and a standard model of agglomeration. Stronger selection in larger cities left truncates the productivity … distribution whereas stronger agglomeration right shifts and dilates the distribution. We assess the relative importance of …

agglomeration economies. This paper provides a microeconomically founded model of vertical city differentiation in which the latter … two mechanisms (`agglomeration' and `selection') operate simultaneously. Our model is both rich and tractable enough to …