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Heterogeneous markets, spatial, urban and international economics

Priority areas of development: economics, management, state and public administration
2020

Goal of research

The goal of the research project "Heterogeneous markets, urban, spatial, and regional economics" is to obtain new significant results in studying general- equilibrium effects in environments with imperfect competition, heterogeneity of firms facing a location-choice problem, and heterogeneity of spatially distributed consumers.

Methodology

The research project uses a rich array of analytical methods of modern economics, including: quantitative general equilibrium models with imperfect competition, endogenous entry, and variable elasticity of substitution; methods of non- cooperative game theory (Nash equilibrium analysis, etc.); gravity equations of international trade; the toolkit of New economic geography, including the "core- periphery" setup, bifurcation diagrams of spatial regimes, stability analysis; the toolkit of urban theory, including the Alonso approach and the Fujita-Ogawa approach tof endogenous city structure formation; dynamic stochastic general equilibrium (DSGE) models of business cycle; methods of microeconometrics, including discrete-choice models (e.g. multinomial logit) kernel estimation and other non-parametric estimation; methods of spatial econometrics, including the spatial lag model, spatial error model, and spatial Durbin model.

Empirical base of research

The research is based on both open-source data and the unique datasets collected by the members of the Center.

Results of research

The research project resulted   in   seven   sets   of   findings. First we have developed a new approach to studying spatial monopolistic competition, which is a big step toward realism in modeling imperfect markets compared to standard settings. We have studied the interplay between forward- and backward-linkages which stem from the interaction between heterogeneous firms competing in both locations and prices and a crowd of heterogeneous consumers distributed exogenously across the product space, which is our way of capturing taste heterogeneity across consumers. Our main result is perfect spatial sortingon the firm side: more productive firms self-select themselves to larger but more competitive market segments. We have also studied a similar model with homogeneous firms, and have shown that uniform equilibrium in such a model is unstable, hile stable equilibria exhibit clustering of firms.

Second, we have studied the conditions of non-monotone gains from trade. More specifically, we have shown that, when trade costs are sufficiently high, the population of countries involved in trade is actually worse off in terms of aggregate welfare than under pure autarky. The gains from trade only start to occur when trade costs decrease below a certain threshold. Also, we have developed a multi-sectoral model of international trade which highlights the role of sector-specific elasticity of scale, which is linked by a circular causality relationship, typical for general-equilibrium models, with the sector- specific productivity level.

Third, we have investigated the consequences of telecommuting for spatial organization of firms. We have shown that an increase in the share of telecommuting workers, first, leads to an increase in overall productivity and GPD, unless there is excessive shrink of office areas. However, too much telecommuting might cause a reduction in GDP. Also, an increase telecommuting has a non-monotone effect on welfare gap between skilled and unskilled workers. In addition to that, we have derived necessary and sufficient conditions for existence of a unique equilibrium in a spatial model with two regions. This result is important for regional policy because models with multiple equilibria has limited use for policy analysis. Indeed, in such models, when the outcome changes in response to a change in policy parameters, we don’t know whether this is due to a change in policy or because   the    economy    ``leaps’    from    one    equilibrium    to    another. Furthermore, we have conducted empirical analyses of single-industry towns and have delineated the borders of industrial clusters in the Russian economy. In doing so, we have been using non-parametric micro-econometric techniques and spatial econometric methods.

In addition to that, we have conducted a number of game-theoretic analyses of market competition: price competition under customers’ private valuations of the products, competition among workers under uneven distribution of wages, competition in expenditure on product promotion. Also, we have conducted empirical analyses of industrial organization for specific industries, including online retail and demand estimation for suburban railway. In addition to that, we have developed an asymmetric loss function useful in sales forecasting.

Last, we have obtained a number of results regarding the impact of imperfect competition, endogenous entry, and variable elasticity of substitution on the behavior of key macroeconomic indicators. Our main contribution here is shedding light on the interdependencies between the structure of international trade and the characteristics of the business cycle. In doing that, we have come up with a number of quantitative predictions using a DSGE model.

Level of implementation, recommendations on implementation or outcomes of the implementation of the results

A number of results has been either published or accepted for publication in international peer-reviewed journals.

Publications:


Koster H., van O. F. G., Gerritse M., Cheng F. F. Place-Based Policies, Firm Productivity and Displacement Effects: Evidence from Shenzhen, China // Journal of Regional Science. 2019. Vol. 59. No. 2. P. 187-213. doi
De P. A., Papageourgiou Y., Thisse J., Ushchev P. About the Origin of Cities // Journal of Urban Economics. 2019. Vol. 111. P. 1-13. doi
Thisse J., Proost S. What Can Be Learned from Spatial Economics? // Journal of Economic Literature. 2019. Vol. 57. No. 3. P. 575-643. doi
Behrens K., Boualam B., Martin J. Are clusters resilient? Evidence from Canadian textile industries // Journal of Economic Geography. 2020. Vol. 20. No. 1. P. 1-36. doi
Behrens K., Murata Y., Mion G., Suedekum J. Quantifying the gap between equilibrium and optimum under monopolistic competition // Quarterly Journal of Economics. 2020. Vol. 135. No. 4. P. 2299-2360. doi
Kichko S. Competition, Land Prices, and City Size // Journal of Economic Geography. 2020. Vol. 20. No. 6. P. 1313-1329. doi
Koster H., van O. J. Housing search frictions and optimal search // Economics Letters. 2020. Vol. 189. No. 108980. doi
Thisse J., Takayama Y., Ikeda K. Stability and sustainability of urban systems under commuting and transportation costs // Regional Science and Urban Economics. 2020. Vol. 84. No. 103553. doi
Ozhegov E. M., Gogolev S. Asymmetric Accuracy Metrics in Food Retail Sales Forecasting: an Empirical Comparison / National Research University Higher School of Economics. Series WP BRP "Basic research program". 2020. No. WP BRP 61/MAN/2020.