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A granular spatial model

Author

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  • Ahlfeldt, Gabriel
  • Albers, Thilo
  • Behrens, Kristian

Abstract

We develop a granular spatial model (GSM) which introduces indivisible workers and firms into the canonical quantitative urban model. Assortative matching between heterogeneous employers and employees leads to the formation of large granular firms, which generates realistic agglomeration patterns with many empty locations and a few extremely dense ones, even with flat location fundamentals. This feature makes the GSM particularly suitable for the study of multiple equilibria and the long-run effects of temporary spatial shocks such as natural disasters or place-based policies. As almost all firms are inframarginal in the GSM, especially the most productive ones in the most dense locations, place-based policies become `place-based lotteries': their expected payoff critically hinges on the probability to attract a few large firms. We illustrate these insights using as an example the spectacular recent rise of Chicago's Fulton Market district west of the Loop.

Suggested Citation

  • Ahlfeldt, Gabriel & Albers, Thilo & Behrens, Kristian, 2022. "A granular spatial model," CEPR Discussion Papers 17126, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:17126
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    More about this item

    Keywords

    Multiple equilibria; Place-based policies; Internal city structure; Granular spatial model;
    All these keywords.

    JEL classification:

    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy
    • R52 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Land Use and Other Regulations
    • R58 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Regional Development Planning and Policy

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