Original Theory of Heterogeneous Agent Models for Informal Labour Market Dynamics in Nigerian Metropolitan Economies

Nigeria's urban informal labour markets, which absorb 70 percent of the metropolitan workforce in cities including Lagos, Kano, and Port Harcourt, exhibit complex dynamics of job creation, worker sorting, wage determination, and sectoral mobility that are inadequately captured by representative agent macroeconomic frameworks. This dissertation develops an original heterogeneous agent general equilibrium model of informal labour market dynamics tailored to the institutional and structural characteristics of Nigerian metropolitan economies. The theoretical framework introduces novel mechanisms for worker skill heterogeneity, informal enterprise productivity distribution, and the search and matching process in the absence of formal intermediaries, building on Mortensen-Pissarides search theory but departing from standard assumptions in three important dimensions adapted to the Nigerian context. An original theoretical contribution is a proof of the existence and uniqueness of stationary equilibrium in the heterogeneous agent economy under conditions on the matching function and skill distribution. The model is solved computationally using the Krusell-Smith algorithm extended to accommodate the dual formal-informal sector structure. Calibration targets are drawn from the Enhancing Financial Innovation and Access geofenced survey data for Lagos and Kano for 2022 to 2023. Policy experiments simulate the effects of minimum wage enforcement, skills training subsidies, and social protection expansion on equilibrium employment, wage inequality, and sectoral distribution. Keywords: heterogeneous agent model, informal labour market, search theory, Nigerian metropolitan economy, general equilibrium.