Lecture02_2019_handout.pdf - ECON280D Lecture 2 Quantitative Spatial Equilibrium Models \u2013 A toolkit Cecile Gaubert U.C Berkeley ECON280D Spring 2018 C

Lecture02_2019_handout.pdf - ECON280D Lecture 2...

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ECON280DLecture 2:Quantitative Spatial Equilibrium Models –A toolkitCecile GaubertU.C. BerkeleyECON280D. Spring 2018. C. GaubertLecture 2Quantitative Spatial Equilibrium Models Toolkit1 / 45
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Spatial equilibriumIThe spatial equilibrium is the result of:IHeterogeneous placesIBalance between agglomeration/congestion forcesIIt features:IHuge spatial disparities in economic activity.ICoexistence ofIHigh density, high price, high wages places (cities)I... and low density, low prices, low nominal wages areasIA framework to rationalize this spatial heterogeneityISpatial Equilibrium ModelsECON280D. Spring 2018. C. GaubertLecture 2Quantitative Spatial Equilibrium Models Toolkit2 / 45
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When use spatial equilibrium models?Useful to study e.g.:Ideterminants and evolution of spatial disparitiesIregional linkages and the propagation of shocks across regionsIsource of growth: aggregate vs regional growthIlink between urbanization and developmentIthe impact of place-based policies and local tax policiesIwhat we are comparing when we use regional variation in empirical workECON280D. Spring 2018. C. GaubertLecture 2Quantitative Spatial Equilibrium Models Toolkit3 / 45
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Starting pointIA Rosen-Roback modelIRosen(1979) : compensating differentialsIRoback (1982): “Wages, Rent, and Quality of Life”INo distance, no geographyIIllustrates the different forces at playIAllows for rich heterogeneity of cities/regionsIBut doesn’t capture linkbetweencities: cannot account for ”gravity”patterns of flow in goods and peopleIConceptual framework lies at the basis of an abundant literatureIe.g. recently Suarez-Serrato and Zidar ’15, Kline and Moretti ’13, Diamond’16, Yagan ’14 etcIWe will then turn to quantitative models that explicit account for geographyECON280D. Spring 2018. C. GaubertLecture 2Quantitative Spatial Equilibrium Models Toolkit4 / 45
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Key ideasIPeople are free to choose where to liveINo arbitrageIEqualization of utility over spaceIFirms are free to choose where to produceIHigh wage, high rents in large cities must compensate higher productivityIThere are real wage differences across citiesICompensating differentials, amenities vary across citiesIResiduals that rationalize real wage differences across citiesECON280D. Spring 2018. C. GaubertLecture 2Quantitative Spatial Equilibrium Models Toolkit5 / 45
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Model LayoutIGeneral assumptions:IHomogenous workers, homogenous firmsIWorkers consume a freely traded good, and a non traded good (housing)IFirms produce freely traded goodIInelastic housing stock in each cityIRegions :INregions indexed byi(1...N).ILi: share of workers in regioni(Li= 1)IDiffer in level of amenities (enjoyed by workers)AiIDiffer in stock of housingHiIDiffer in level of productivity (for firm production)TiECON280D. Spring 2018. C. GaubertLecture 2Quantitative Spatial Equilibrium Models Toolkit6 / 45
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Model LayoutIUtility from living in cityiis multiplicatively separableui=mic1-hihhiIci
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  • Spring '19
  • Cecile Gaubert
  • Force, Utility, Elasticity of substitution, Constant elasticity of substitution, Quantitative Spatial Equilibrium Models Toolkit

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