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Estimating Equilibrium Models of Sorting Across Locations

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  • Bayer, Patrick
  • Timmins, Christopher

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.

Suggested Citation

  • Bayer, Patrick & Timmins, Christopher, 2003. "Estimating Equilibrium Models of Sorting Across Locations," Center Discussion Papers 28448, Yale University, Economic Growth Center.
  • Handle: RePEc:ags:yaleeg:28448
    DOI: 10.22004/ag.econ.28448
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    References listed on IDEAS

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    5. 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.
    6. Ellison, Glenn & Glaeser, Edward L, 1997. "Geographic Concentration in U.S. Manufacturing Industries: A Dartboard Approach," Journal of Political Economy, University of Chicago Press, vol. 105(5), pages 889-927, October.
    7. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-890, July.
    8. Giorgio Topa, 2001. "Social Interactions, Local Spillovers and Unemployment," Review of Economic Studies, Oxford University Press, vol. 68(2), pages 261-295.
    9. Patrick Bajari & Matthew E. Kahn, "undated". "Why Do Blacks Live in The Cities and Whites Live in the Suburbs?," Working Papers 00007, Stanford University, Department of Economics.
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    Cited by:

    1. Bayer, Patrick & Timmins, Christopher, 2003. "A Note on the Equilibrium Properties of Locational Sorting Models," Center Discussion Papers 28378, Yale University, Economic Growth Center.
    2. Deichmann, Uwe & Kaiser, Kai & Lall, Somik V & Shalizi, Zmarak, 2005. "Agglomeration, transport, and regional development in Indonesia," Policy Research Working Paper Series 3477, The World Bank.
    3. Patrick Bayer & Christopher Timmins, 2003. "A Note on the Equilibrium Properties of Locational Sorting Models," Working Papers 861, Economic Growth Center, Yale University.
    4. Robalino, Juan A. & Pfaff, Alexander, 2012. "Contagious development: Neighbor interactions in deforestation," Journal of Development Economics, Elsevier, vol. 97(2), pages 427-436.
    5. Bayer, Patrick & Timmins, Christopher, 2005. "On the equilibrium properties of locational sorting models," Journal of Urban Economics, Elsevier, vol. 57(3), pages 462-477, May.

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