Land Markets in the Harris‐Todaro Model: A New Factor Equilibrating Rural‐Urban Migration

Recent research in the Harris‐Todaro (HT) tradition has added an important new element to the model by incorporating an urban land market. Brueckner and Zenou (1999) (hereafter BZ) argue that a model where migration equalizes expected wages between city and countryside may overlook another important force that equilibrates the process of rural‐urban migration. This force is the migration‐induced rise in the urban cost of living, which occurs principally through escalation of urban land rents as the city population expands. Land‐rent escalation, which tends to limit rural‐urban migration, provides an important additional force that may help determine city sizes in developing countries. The present paper provides a simpler alternative to BZ's analysis by assuming that urban residents smooth their income as they cycle between formal and informal employment. This allows migration decisions to be based on the expected wage, as in the usual HT framework, in a model that includes a land market. The analysis shows that this modified framework generates results slightly different from those of BZ.