A Simultaneous Econometric Model of the Intra-urban Location of Employment and Residence

Abstract

In this paper an attempt has been made to inject into urban economics some basic tenets of econometrics which already permeate the other branches of economics. The cornerstone of any econometric model, a basis in economic theory, was found to be lacking in many models of intraurban location. Furthermore, a discussion of various types of econometric (i.e., simple, recursive, and simultaneous) models and their appropriate estimation techniques revealed a contradiction between certain urban economic models as to their specification of the causal relationship between the intraurban location of residents and employment. In such a situation estimation results of the contradictory models may be spurious. In order to resolve this contradiction a simultaneous econometric model with a theoretical basis is presented. An attempt is then made to compare estimation of simultaneous model (using TSLS) with OLS estimation of the contradictory models. The main conclusion is that failing to allow for the simultaneity of residence and employment will lead to overestimating the significance of employment as a determinant of residential location. It is further suggested that the study of intraurban location has, perhaps, overlooked or dismissed the importance of residential location as a determinant of employment location.