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There are N number of people living and working in the economy, which is divided into J discrete neighbor hoods [e.g., Neighborhood 1, Neighborhood 2,...,
There are N number of people living and working in the economy, which is divided into J discrete neighbor hoods [e.g., Neighborhood 1, Neighborhood 2,..., Neighborhood J]. Each neighborhood can be a residence [1") to some people and a workplace location (m) to some people. Assume a closed eoonomy {no change in population} and that all of the residents work. With some additional aumptions,1 the distribution of residents in terms of their residence and workplace location can be described as follows: to v where rm is equal to the fraction of people living in residence 3" and workplace location In. (i.e., arm x N is equal to the number of people living in r and working in m}; B,- 3:- 0 corresponds to a numerical value of residential amenities in residence 1"; mm is the wage earned from working in workplace location m; g, is the home prioe in 1'; rim, is the distance between 1' and in {rm = 1 if r = m; work and live in the same location; very short distance of commuting}; arm is a random error term with mean equal to zero. Assume 1:6 2::- 1, on E [l], 1}, d :a- 0. Note that Zj=1 EJ 211.,\" = 1, by construction. m=1 1. Based on Equation [1}, compute the expression for the elasticity of commuting [i.e., the probability of commuting from r to m] with respect to distanoe between 1' and m. Provide your interpretation of the expression. You can do this by computing: ail-rm X drm _ 3111 'Il'rm Bdrm Fm 3111 drm Hint: You should get d
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