Spatial Economics for Granular Settings

Abstract

We examine the application of quantitative spatial models to the growing body of fine spatial data used to study local economic outcomes. In granular settings in which people choose from a large set of potential residence-workplace pairs, observed outcomes in part reflect idiosyncratic choices. Using both Monte Carlo simulations and event studies of neighborhood employment booms, we demonstrate that calibration procedures that equate observed shares and modeled probabilities perform very poorly in these high-dimensional settings. Parsimonious specifications of spatial linkages deliver better counterfactual predictions. To quantify the uncertainty about counterfactual outcomes induced by the idiosyncratic component of individuals’ decisions, we introduce a quantitative spatial model with a finite number of individuals. Applying this model to Amazon’s proposed second headquarters in New York City reveals that its predicted consequences for most neighborhoods vary substantially across realizations of the individual idiosyncrasies. Joint paper with Jonathan I. Dingel.

Link to paper.