Working Paper: NBER ID: w20354
Authors: Gabriel M. Ahlfeldt; Stephen J. Redding; Daniel M. Sturm; Nikolaus Wolf
Abstract: This paper develops a quantitative model of internal city structure that features agglomeration and dispersion forces and an arbitrary number of heterogeneous city blocks. The model remains tractable and amenable to empirical analysis because of stochastic shocks to commuting decisions, which yield a gravity equation for commuting flows. To structurally estimate agglomeration and dispersion forces, we use data on thousands of city blocks in Berlin for 1936, 1986 and 2006 and exogenous variation from the city’s division and reunification. We estimate substantial and highly localized production and residential externalities. We show that the model with the estimated agglomeration parameters can account both qualitatively and quantitatively for the observed changes in city structure. We show how our quantitative framework can be used to undertake counterfactuals for changes in the organization of economic activity within cities in response for example to changes in the transport network.
Keywords: agglomeration; dispersion; urban economics; Berlin Wall; commuting
JEL Codes: N34; O18; R12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Division of Berlin (F55) | Reorientation of land prices and employment in West Berlin (F16) |
| Division of Berlin (F55) | Decrease in productivity and residential externalities (D62) |
| Density of workplace employment (J29) | Elasticity of productivity (D24) |
| Density of residents (R23) | Elasticity of amenities (D11) |
| Division of Berlin (F55) | Reduced expected utility in West Berlin (D11) |
| Reunification (Y50) | Restoration of dynamics in West Berlin (E65) |