Estimating Neighborhood Effects: Evidence from War-time Destruction in London∗

We use Second World War destruction in London as a natural experiment to provide evidence on neighborhood e ects. We use a newly-collected and remarkable dataset on thousands of locations within London that records wartime destruction and the economic and social characteristics of locations from the latenineteenth to late-twentieth centuries. We combine these data with a quantitative model of the sorting of heterogeneous groups of agents across locations that di er in productivity, amenities and transport infrastructure. We nd that both own and neighbors’ destruction a ect patterns of spatial sorting and that the e ects of neighbors’ destruction are highly localized (0-200 meters). These ndings provide evidence for spatial sorting as a mechanism through which neighborhood e ects occur. JEL CLASSIFICTION: F16, N9, R23