Estimating Equilibrium Models of Local Jurisdictions

Abstract

Research over the past several years has led to the development of models characterizing equilibrium in a system of local jurisdictions. An important insight from these models is that plausible single‐crossing assumptions about preferences generate strong predictions about the equilibrium distribution of households across communities. To date, these predictions have not subjected to formal empirical tests. The purpose of this paper is to provide an integrated approach for testing predictions from this class of models. We first test conditions for locational equilibrium implied by these models. In particular, we test predictions about the distribution of households by income across communities. We then test the models' predictions about the relationships among loclational equilibrium conditions, housing markets, and housing prices. By drawing inferences from a structural general equilibrium model, the paper offers a unified treatment of theory and empirical testing.