Abstract

We develop a dynamic spatial model in which workers choose local labour markets facing costs and returns to agglomeration. Agents are imperfectly mobile and forward-looking and yet there is a direct mapping from data and parameters to all structural fundamentals. We show how to exploit this novel feature of the model to measure quality of life, evaluate spatial programmes, and analyse the welfare effects of spatial policies on movers and stayers in a frictional general equilibrium where there is spatial incidence.