economic functions in specific locations within cities, such as Manhattan in New York and the Square Mile in London.

Understanding the strength of the forces of agglomeration and dispersion that underlie these concentrations of economic activity is central to a range of economic and policy questions. These forces shape the size and internal structure of cities, with implications for the incomes of immobile factors, congestion costs and urban productivity. They also determine the impact of public policy interventions, such as investments in transport infrastructure as well as urban development and taxation policies.

Agglomeration, dispersion and locational fundamentals

Although much has been written about economic geography and urban economics dating back at least as far as Alfred Marshall’s Principles of Economics, published in 1920, a central challenge remains: distinguishing the impact ofto find exogenous sources of variation in the surrounding concentration of economic activity to help disentangle agglomeration and dispersion forces from variation in locational fundamentals.

Internal city structure

Our research develops a quantitative theoretical model of internal city structure. The model incorporates agglomeration and dispersion forces and an arbitrary number of heterogeneous locations within the city, while remaining amenable to empirical analysis:

Locations differ in terms of productivity, amenities, the density of development (which determines the ratio of floor space to ground area) and access to transport infrastructure.

Productivity depends on production externalities, which are determined by the surrounding density of workers, and production fundamentals, such as topography and proximity to natural supplies of water.

Amenities depend on residential externalities, which are determined by the surrounding density of residents, and residential fundamentals, such