They characterize the stationary distribution of firms that arises in equilibrium. They estimate the parameters of the model using a method of moments estimator. Using unique panel data collected by Dun and Bradstreet, the authors find that their model fits the moments used in estimation as well as a set of moments that the authors use for model validation. Agglomeration externalities increase the productivity of firms by about 8 percent. Economic policies that subsidize firm relocations to the central business district increase agglomeration externalities in that area. They also increase economic welfare in the urban economy.