An Exploration of the Real Productivity Effects of Cities

Recent evidence on earnings differentials between urban areas points to a tradeoff between income and environmental quality (Izraeli, 1977). Efforts to establish the characteristics of urban environmental quality income tradeoff functions must confront recent research dealing with the productivity of cities. A yet unresolved controversy exists between those who argue agglomeration economies produce a net productivity differential in favor of larger urban areas and those who suggest the higher incomes in larger cities largely reflect compensatory payments for urban disamenities. This paper attempts to resolve several parts of this controversy.