The Economics of Density: Evidence from the Berlin Wall

56 Pages Posted: 4 Aug 2014 Last revised: 12 Feb 2023

See all articles by Gabriel M. Ahlfeldt

Gabriel M. Ahlfeldt

London School of Economics & Political Science (LSE) - Department of Geography and Environment

Stephen J. Redding

Princeton University

Daniel M Sturm

London School of Economics

Nikolaus Wolf

Centre for Economic Policy Research (CEPR); Humboldt University Berlin - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); London School of Economics - Centre for Economic Performance (CEP)

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Date Written: July 2014

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.

Suggested Citation

Ahlfeldt, Gabriel M. and Redding, Stephen J. and Sturm, Daniel M and Wolf, Nikolaus and Wolf, Nikolaus, The Economics of Density: Evidence from the Berlin Wall (July 2014). NBER Working Paper No. w20354, Available at SSRN: https://ssrn.com/abstract=2475701

Gabriel M. Ahlfeldt (Contact Author)

London School of Economics & Political Science (LSE) - Department of Geography and Environment ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

HOME PAGE: http://personal.lse.ac.uk/ahlfeldg/

Stephen J. Redding

Princeton University ( email )

Princeton, NJ 08544-1021
United States

HOME PAGE: http://www.princeton.edu/~reddings/

Daniel M Sturm

London School of Economics ( email )

Houghton Street
London WC2A 2AE
United Kingdom

Nikolaus Wolf

Humboldt University Berlin - Department of Economics ( email )

Spandauer Strasse 1
Berlin
Germany

HOME PAGE: http://www.wiwi.hu-berlin.de/professuren/vwl/wg/

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

London School of Economics - Centre for Economic Performance (CEP) ( email )

Houghton Street
London WC2A 2AE
United Kingdom
+4420-7852-3512 (Phone)

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