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The Economics of Density: Evidence From the Berlin Wall

Author(s): Ahlfeldt, Gabriel M.; Redding, Stephen J.; Sturm, Daniel M.; Wolf, Nikolaus

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Abstract: 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.
Publication Date: Nov-2015
Electronic Publication Date: Nov-2015
Citation: Ahlfeldt, Gabriel M, Redding, Stephen J, Sturm, Daniel M, Wolf, Nikolaus. (2015). The Economics of Density: Evidence From the Berlin Wall. Econometrica, 83 (6), 2127 - 2189. doi:10.3982/ECTA10876
DOI: doi:10.3982/ECTA10876
ISSN: 0012-9682
Pages: 2127 - 2189
Type of Material: Journal Article
Journal/Proceeding Title: Econometrica
Version: Final published version. Article is made available in OAR by the publisher's permission or policy.

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