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The Economics of Density: Evidence from the Berlin Wall

Listed author(s):
  • Ahlfeldt, Gabriel
  • Redding, Stephen J.
  • Sturm, Daniel M
  • Wolf, Nikolaus

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.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 10097.

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Date of creation: Aug 2014
Handle: RePEc:cpr:ceprdp:10097
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