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.View the Full Working Paper
Estimating a Dynamic Equilibrium Model of Firm Location Choices in an Urban Economy
WP 12-26 - The authors develop a new dynamic general equilibrium model to explain firm entry, exit, and relocation decisions in an urban economy with multiple locations and agglomeration externalities.