Structural Estimation in Urban Economics*

Structural estimation is a methodological approach in empirical economics explicitly based on economic theory, in which economic modeling, estimation, and empirical analysis are required to be internally consistent. This chapter illustrates the structural approach with three applications in urban economics: (1) discrete location choice, (2) fiscal competition and local public good provision, and (3) regional specialization. For each application, we first discuss broad methodological principles of model selection and development. Next we treat issues of identification and estimation. The final step of each discussion is how estimated structural models can be used for policy analysis. *We would like to thank Nate Baum-Snow, Gilles Duranton, Dennis Epple, Vernon Henderson, Andy Postlewaite, and Will Strange for helpful discussions and detailed comments. The views expressed herein are those of the authors and not necessarily those of the Federal Reserve Bank of Minneapolis, the Federal Reserve Board, or the Federal Reserve System.