This article exploits differences in the Gay Index representing diversity and tolerance to estimate the effect of talent on economic performance in U.S. metropolitan areas, and proposes a theory of mechanism of talent distribution and its economic consequences. The index shows there were different degrees of tolerance in early years in different metropolitan areas, with different associated talent. Areas that had high tolerance in early years are more likely tolerant and diverse currently, and can attract more talent. Exploiting differences in the Gay Index as an instrument for current talent, this study estimates a large effect of talent on income per capita. Findings also suggest that other factors, such as high technology and amenities, do not affect regional development directly but do so indirectly by attracting talent. for their invaluable comments. I also wish to acknowledge the help of editor Karen A.Cerulo and four anonymous reviewers, whose comments, advice, and suggestions proved invaluable for the revision. 2 nSPARC,