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Title: An Approach for Empirical Work in Spatial Dynamics

Citation Type: Working Paper

Publication Year: 2017

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Abstract: his paper illustrates how to incorporate forward-looking behavior into empirical spatial equilibrium models with locational heterogeneity. The main insight is that the standard spatial equilibrium already embeds a natural starting point for dynamics: the presence of spatial indifference conditions can dramatically simplify the state space of forward-looking agents. One needs to know how utility evolves with the variables in the system, but not every individual state, effectively side-stepping the curse of dimensionality. Standard numerical rational expectations methods can be applied to derive approximate solutions to the full dynamic specification. The paper uses an example model of landowners exercising real options in construction of housing to show how the approximation's errors are negligibly small, and importantly, much smaller than the differences between dynamic and myopic specifications of the same model.

Url: https://papers.ssrn.com/Sol3/papers.cfm?abstract_id=2963217

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Authors: Mangum, Kyle

Series Title: Andrew Young School of Policy Studies Research Paper Series

Publication Number: 17-06

Institution: Andrew Young School of Policy Studies

Pages: 53

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Data Collections: IPUMS USA

Topics: Population Data Science, Population Mobility and Spatial Demography

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