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Journal article

The economics of density: evidence from the Berlin Wall

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.

Gabriel M. Ahlfeldt, Stephen J. Redding, Daniel M. Sturm and Nikolaus Wolf

1 November 2015

Econometrica 83(6) 2015

DOI: 10.3982/ecta10876

This Journal article is published under the centre's Urban programme.

This publication comes under the following theme: Urban inequality: The role of urban amenities, housing, infrastructure