Knowledge Spillovers in Cities:An Auction Approach
Victor Couture
University of California, Berkeley
This draft: 10 February 2015
Abstract: This paper proposes a micro-foundation for knowledge spillovers. I model a city in which free knowledge transfers are bids by experts to entrepreneurs who auction jobs. These knowledge bids resemble a consultant’s pitch to a potential client. Two fundamental properties of knowledge underlie the model: First, it is often necessary to reveal some knowledge to demonstrate its value. Second, knowledge is freely reproducible.Larger cities generate more meetings between experts
and entrepreneurs, resulting in more learning and better matches. Larger cities also foster competition for jobs,which motivates experts to raise their knowledge bids.These results demonstrate how competitive behavior can
be a source of agglomeration economies, and contribute to explain the higher productivity of urban workers.
Key words: agglomeration, auction, knowledge spillovers.
jel classification: d44, d83, r23, r39
