This website uses cookies.

By clicking the "Accept" button or continuing to browse our site, you agree to first-party and session-only cookies being stored on your device to enhance site navigation and analyze site performance and traffic. For more information on our use of cookies, please see our Privacy Policy.

  1. Home
  2. ASSA Annual Meeting
  3. 2021
  4. Preliminary Program
  5. Models of Space and Sorting
« Back to Results

Models of Space and Sorting

Paper Session

Monday, Jan. 4, 2021 10:00 AM - 12:00 PM (EST)

Hosted By: Econometric Society
  • Chair: Myrto Kalouptsidi, Harvard University

Location Sorting and Endogenous Amenities: Evidence from Amsterdam

Milena Almagro
,
New York University
Tomas Dominguez-Iino
,
New York University

Abstract

This paper argues that the endogeneity of amenities plays a crucial role in the welfare distribution of a city's residents by reinforcing location sorting. We quantify this channel by leveraging spatial variation in tourism flows and the entry of home-sharing platforms, such as Airbnb, as shifters of location characteristics to estimate a dynamic model of residential choice. In our model, consumption amenities in each location are the equilibrium outcome of a market for services, which are supplied by firms and demanded by heterogeneous households. We estimate the model using detailed Dutch microdata, which allows us to track the universe of Amsterdam's residents over time and the evolution of a rich set of neighborhood amenities. Our results indicate significant heterogeneity across households in their valuation of different amenities, as well as in the response of amenities to demographic composition. We show that allowing for this endogenous response increases inequality between demographic groups whose preferences are closely aligned, but decreases it if substantially misaligned, suggesting heterogeneity in the two-way mapping between households and amenities plays a crucial distributive role. Finally, we highlight the distributional implications of our estimates by evaluating currently debated policies, such as zoning, as well as price and quantity regulations in housing markets.

Equilibrium Implications of Dynamic Location Choice: Market Frictions, Arbitrage and the Capitalization of Amenities

Amine Ouazad
,
HEC
Romain Ranciere
,
University of Southern California

Abstract

This paper introduces endogenously negotiated transaction prices and the stock-flow approach into Bayer, McMillan, Murphy & Timmins’s (2016) workhorse structural discrete dynamic location choice model. In a frictional city, homeowners who move out of their current unit switch from the demand to the supply side and generate substantial shifts in neighborhood vacancies. This enables structurally estimated dynamic location choice literature to pin down the equilibrium: local prices, vacancies, and transaction flows; while retaining the tractability and parsimonious data needs of such models. As prices depend on values, search frictions affect the price-amenity gradient. First, prices capture households' multidimensional preferences for amenities, expectations of future amenites, but also an index of trading opportunities that captures search and credit frictions. The time-variation in the price-amenity gradient reflects search and credit frictions. This explains the flattening and steeping of the price-amenity gradient, from the housing boom to the bust, due to the decline in the capitalization of trading opportunities in prices. Second, the model predicts that agents who do not face search and credit frictions can arbitrage away variations in trading opportunities by matching selected pairs of buyers and sellers. Third, the equilibrium approach enables out-of-sample simulations of the impact of frictions on prices, vacancies, and transaction flows.

The Selection of Prices and Commissions in a Spatial Model of Ride-Hailing

Cemil Selcuk
,
Cardiff University

Abstract

Creating the right incentives for a flexible workforce lies at the heart of the gig economy. For most gig economy companies, a key question is how to best connect independent workers in their platforms with service-seeking consumers through the right pricing and matching mechanisms. We focus on ride-hailing where workers have significant discretion over where and when to work to serve consumers across different locations. Building a spatial model, we study how a platform can create incentives for independent drivers via prices and/or commissions, and how they affect drivers' search behavior across a network of locations. While flexible pricing and fixed commission appear to be the modus operandi in most ride-hailing platforms, we propose a new location-based (flexible) commission policy that outperforms flexible pricing in matching spatially differentiated supply and demand. A flexible commission policy creates more matches, generates more profits and, depending on parameters, generates more consumer surplus, whereas price-based interventions distort the interior demand without fully resolving bottlenecks. Simulations based on actual ride patterns from New York City and Los Angeles confirm our insights.

Search Frictions and Efficiency in Decentralized Transport Markets

Giulia Brancaccio
,
Cornell University
Myrto Kalouptsidi
,
Harvard University
Theodore Papageorgiou
,
Boston College
Nicola Rosaia
,
Harvard University

Abstract

In this paper we explore efficiency and optimal policy in decentralized transportation markets that suffer from search frictions, such as taxicabs, trucks and bulk shipping. We illustrate the impact of two externalities: the well-known thin/thick market externalities and what we call pooling externalities. We characterize analytically the conditions for efficiency, show how they translate into efficient pricing rules, as well as derive the optimal taxes for the case where planner is not able to set prices. We use our theoretical results to explore welfare loss and optimal policy in dry bulk shipping. We find that the constrained efficient allocation achieves 6% welfare gains, while the first-best allocation corresponding to the frictionless world, achieves 14% welfare gains. This suggests that policy can achieve substantial gains even if it does not alleviate search frictions, e.g. through a centralizing platform. Finally, simple policies designed to mimic the optimal taxes perform well.
JEL Classifications
  • R3 - Real Estate Markets, Spatial Production Analysis, and Firm Location
  • R4 - Transportation Economics