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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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    File URL: http://ageconsearch.umn.edu/record/28448/files/dp030862.pdf
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    References listed on IDEAS

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    1. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416-416.
    2. 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.
    3. 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.
    4. 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.
    5. Steve Berry & Oliver B. Linton & Ariel Pakes, 2004. "Limit Theorems for Estimating the Parameters of Differentiated Product Demand Systems," Review of Economic Studies, Oxford University Press, vol. 71(3), pages 613-654.
    6. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-890, July.
    7. Uwe Deichmann & Marianne Fay & Jun Koo & Somik V. Lall, 2004. "Economic structure, productivity, and infrastructure quality in Southern Mexico," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 38(3), pages 361-385, September.
    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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    Citations

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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. Patrick Bayer & Christopher Timmins, 2003. "A Note on the Equilibrium Properties of Locational Sorting Models," Working Papers 861, Economic Growth Center, Yale University.
    3. 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.
    4. Robalino, Juan A. & Pfaff, Alexander, 2012. "Contagious development: Neighbor interactions in deforestation," Journal of Development Economics, Elsevier, vol. 97(2), pages 427-436.

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