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The Economics of Density: Evidence from the Berlin Wall

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

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.

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File URL: http://www.nber.org/papers/w20354.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 20354.

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Date of creation: Jul 2014
Publication status: published as Gabriel M. Ahlfeldt & Stephen J. Redding & Daniel M. Sturm & Nikolaus Wolf, 2015. "The Economics of Density: Evidence From the Berlin Wall," Econometrica, Econometric Society, vol. 83, pages 2127-2189, November.
Handle: RePEc:nbr:nberwo:20354
Note: ITI
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