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Estimating Equilibrium Models of Sorting across Locations

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  • Patrick Bayer

    ()
    (Economic Growth Center, Yale University)

  • Christopher Timmins

Abstract

With the growing recognition of the role played by geography in all sorts of economic problems, there is strong interest in measuring the size and scope of local spillovers (i.e., simple anonymous agglomeration or congestion effects, or more complicated interactions between individuals or firms of specific types). It is well-understood, however, that such spillovers cannot be distinguished from unobservable local attributes using just the observed location decisions of individuals or firms. We propose an empirical strategy for recovering estimates of spillovers in the presence of unobserved local attributes for a broadly applicable class of equilibrium sorting models. This approach relies on an instrumental variables strategy derived from the internal logic of the sorting model itself. We show practically how the strategy is implemented, provide intuition for our instrumental variables, and discuss the role of effective choice-set variation in identifying the model, and carry-out a series of Monte Carlo experiments to demonstrate the instruments' performance in small samples.

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Bibliographic Info

Paper provided by Economic Growth Center, Yale University in its series Working Papers with number 862.

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Length: 31 pages
Date of creation: Jul 2003
Date of revision:
Handle: RePEc:egc:wpaper:862

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Related research

Keywords: Local Spillovers; Location Choice; Economic Geography; Natural Advantage; Social Interactions; Network Effects; Endogenous Sorting; Discrete Choice Models; Agglomeration; Congestion;

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References

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  1. Topa, Giorgio, 2001. "Social Interactions, Local Spillovers and Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 68(2), pages 261-95, April.
  2. Schelling, Thomas C, 1969. "Models of Segregation," American Economic Review, American Economic Association, vol. 59(2), pages 488-93, May.
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  7. Brock,W.A. & Durlauf,S.N., 2000. "Discrete choice with social interactions," Working papers 7, Wisconsin Madison - Social Systems.
  8. Dennis Epple & Holger Sieg, 1999. "Estimating Equilibrium Models of Local Jurisdictions," Journal of Political Economy, University of Chicago Press, vol. 107(4), pages 645-681, August.
  9. Glaeser, Edward L & Sacerdote, Bruce & Scheinkman, Jose A, 1996. "Crime and Social Interactions," The Quarterly Journal of Economics, MIT Press, vol. 111(2), pages 507-48, May.
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  12. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416.
  13. Michael E. Porter, 2000. "Location, Competition, and Economic Development: Local Clusters in a Global Economy," Economic Development Quarterly, , vol. 14(1), pages 15-34, February.
  14. Ellison, G. & Glaeser, E.L., 1994. "Geographic Concentration in U.S. Manufacturing Industries: A Dartboard Approach," Working papers 94-27, Massachusetts Institute of Technology (MIT), Department of Economics.
  15. Marc Rysman, 2004. "Competition Between Networks: A�Study of the Market for Yellow�Pages," Review of Economic Studies, Wiley Blackwell, vol. 71(2), pages 483-512, 04.
  16. Deichmann, Uwe & Fay, Marianne & Jun Koo & Lall, Somik V., 2002. "Economic structure, productivity, and infrastructure quality in southern Mexico," Policy Research Working Paper Series 2900, The World Bank.
  17. Patrick Bayer & Robert McMillan & Kim Rueben, 2004. "Residential Segregation in General Equilibrium," Working Papers 885, Economic Growth Center, Yale University.
  18. Edward L. Glaeser & Jose Scheinkman, 2000. "Non-Market Interactions," NBER Working Papers 8053, National Bureau of Economic Research, Inc.
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  1. Tel Aviv's Boom and the Knife's Edge
    by Matthew E. Kahn in Environmental and Urban Economics on 2010-01-12 15:37:00
  2. Two Interesting Pieces About Real Estate Economics
    by Matthew Kahn in Environmental and Urban Economics on 2012-11-28 15:56:00
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