Workers in the region choose either self-sufficiency or working with other
workers in an innovation cluster (a city). In the lower panel of Figure 2–4 , the
horizontal line shows the wage from self-sufficiency. In this case, the wage exceeds
the payoff from solo innovation (an innovation cluster of one worker). Suppose that
initially all workers are self-sufficient. This is an equilibrium allocation because
solo innovation is less lucrative than self-sufficiency, meaning that no single worker
has an incentive to switch to innovation. As a result, the distribution of population
is uniform—there are no cities.