Housing Constraints and Spatial Misallocation:

Comment

Brian Greaney∗

1 Introduction

Hsieh and Moretti (2019, hereafter HM) examine the macroeconomic effects of relaxing
land-use regulations. They find that easing these restrictions in three of the most produc-
tive cities in the U.S. would have increased GDP in 2009 by 3.7%.

In this note, I revisit HM’s findings. Using their model and data, I first attempt to replicate
their results. In contrast to HM, I find that their model predicts that the land-use dereg-
ulation experiment they propose would decrease output. There are errors in HM’s code
which account for this discrepancy. Furthermore, I show that the results of HM’s model
depend on the unit in which population is measured. Since the choice of population unit
is arbitrary, their model is not well-specified.

Unit dependence in HM’s model is due to the way they model house prices. I propose a
modification to their house price specification that is consistent with the estimating equa-
tion used to obtain their house price elasticities, and makes the results of their model invari-
ant to population unit. The amended model predicts that HM’s deregulation experiment
would increase output by 0.02%. While this is consistent with HM’s conclusion that relax-
ing land-use regulations can increase output, the effect is two orders of magnitude smaller
than what they report.
∗ University of Washington, 410 Spokane Lane, Seattle, WA 98105. email: bg385@uw.edu.

1
2 HM’s Model

In this section, I describe HM’s model. I use the “imperfect mobility” version of the model,
which is used to obtain their main results. The equilibrium system is equations (2), (4),
and (10) of HM, along with the choice of total population L, which they assume is 1. Their
equilibrium system can be written as1

1− α − η
η −1
Wi = Ai Li (1)
γ
Pi = Pi Li i (2)
−β
Li (Wi Zi Pi )θ
= (3)
L −β
∑ j (Wj Zj Pj )θ

∑ Li = L (4)
i

Equation (1) (HM equation 2) is a labor demand equation that relates wages Wi to (trans-
formed) productivities Ai and population Li (which equals labor supply). If α + η < 1 (as
in HM’s calibration), the labor demand curve is downward sloping, so an increase in local
population lowers the local wage. Equation (2) (HM equation 4) gives rental prices Pi as
a function of an exogenous house price shifter Pi and Li . γi is the elasticity of house price
with respect to population, which is allowed to vary by location. HM’s main counterfactual
involves changing γi in select locations. Equation (3) (HM equation 10) is a labor supply
equation that gives the fraction of population that chooses each location as a function of
Wi , Pi , and local amenities Zi . The fraction of agents who choose to live in i is increasing in
−β
the real wage Wi Pi (where β is the housing expenditure share) and amenities. Equation
(4) is not explicitly included in HM. On page 6, they assume total population is L = 1. As
shown below, the results of HM’s main counterfactual depend on L, so this assumption is
not innocuous.

An equilibrium is wages, rental prices, and populations (Wi , Pi , Li ) that satisfy equations
(1)-(4) given (Ai , Pi , Zi , L). Aggregate output Y can be derived from the first-order condi-

1 All notation is the same as HM except for L (which they do not explicitly use) and Ai ≡
1− α − η
[ α 1− η η η A
i Ti /Rη ]1/(1−η ) , which is a function of parameters that do not change in their counterfactual.

2
tions of HM equation (1), which implies that the labor share of output is α:

Y= ∑(Wi Li /α) (5)

i

3 HM’s Counterfactual

3.1 Replication

HM choose (Ai , Pi , Zi ) to match data (Wi , Pi , Li ) in 2009 with L = 1.2 They then compute
a counterfactual equilibrium in which the house price elasticity parameters γi are changed
in New York, San Jose, and San Francisco. All other parameters remain unchanged. The
counterfactual house price elasticities are those that would obtain according to Saiz (2010)’s
estimates if the Wharton Residential Land Use Regulatory Index (Gyourko et al., 2008)
were set to the median in the treated cities.3 In all three treated locations, this lowers γi .
HM report that this counterfactual would raise output by 3.7%.

I repeat HM’s counterfactual using their model, data, and parameter values.4 Specifically,
I solve the equilibrium system (1)-(5) for both the baseline and counterfactual values of γ,
and then compute the percentage change in Y caused by the change in γ. The algorithm
I use to compute equilibria is described in Appendix D. Table 1 displays the percentage
change in total output, as well as populations and house prices in the treated cities, caused
by HM’s counterfactual. In contrast to HM, I find that their counterfactual would lower
aggregate output by 0.30% and decrease the populations of the treated cities. There are
errors in HM’s code which account for this discrepancy, which I document in Appendix E.

2 As discussed in HM Section III, the parameters (Ai , Pi , Zi ) can be chosen to match data (Wi , Pi , Li ) as
(1− α − η ) / (1− η )
follows. Rearranging equations (1) and (2) yields productivities Ai = Wi Li and house price
− γi
shifters Pi = Pi Li . Since equilibrium is unaffected by the scale of the amenity vector, we can normalize
−β β
∑i (Wi Zi Pi )θ = 1. Amenities can then be recovered from data using Zi = ( Li /L)1/θ Pi /Wi .
3 See Appendix A for more details.
4 The parameter values, listed on pages 16-19 of HM, are α = 0.65, η = 0.25, β = 0.32, and θ = 1/0.3.

3
 Table 1: Replication Results

Total Output Population House Price

NY SF SJ NY SF SJ
−0.30% −7.79% −11.57% −5.88% +13.27% +19.57% +9.88%
Notes: This table displays the results from my replication of HM’s main counterfactual. All values are per-
centage changes relative to the baseline equilibrium. In this counterfactual, house price elasticities γi are
lowered in New York, San Francisco, and San Jose. HM report that this counterfactual would raise output by
3.7% and increase the population share of all three treated cities. In contrast, I find that it would lower output
by 0.30% and decrease the population shares of the treated cities. There are errors in HM’s code that account
for this discrepancy, which are documented in Appendix E.

3.2 Unit Dependence

It may seem surprising that HM’s main counterfactual would lower output. In fact, the
results of their counterfactual vary depending on the arbitrary choice of total population
L. Depending on this choice, their counterfactual can either lower or raise output. It turns
out that L = 1 implies the change in γ they consider would lower output.

To see that the results of HM’s main counterfactual depends on L, it is useful to rewrite
their equilibrium system (1)-(5) using the hat notation of Dekle et al. (2008). Let x denote
an equilibrium variable from the factual equilibrium and x 0 the same variable in a counter-
factual equilibrium. The proportional change in x caused by the counterfactual is x̂ ≡ x 0 /x.
Assuming α, η, β, and θ are held constant, equations (1)-(5) can be written as

1− α − η
Ŵi = Âi lˆi
η −1
(6)
γi0 0
P̂i = Pˆ i lˆi (li L)γi −γi (7)
−β
(Ŵi Ẑi P̂i )θ
lˆi = −β
(8)
∑ j l j (Ŵj Ẑj P̂j )θ

1= ∑ li lˆi (9)
i

Ŷ = ∑ yi Ŵi lˆi (10)

i

where yi = Wi li /(∑ j Wj l j ) is location i’s output share in the factual equilibrium. Solving
the system of equations (6)-(10) yields the proportional changes in equilibrium variables

4
after a change in parameters.

For counterfactuals that involve changes in γi , the equilibrium system (6)-(10) cannot be
written independently of L. As long as γi0 6= γi , L shows up in the house price equation
(7). Note that if γi does not change, the final term of (7) is 1 and so the equilibrium system
(6)-(10) is independent of L. The results of many counterfactuals, such as changes to A, P,
or Z, are invariant to population unit in HM’s model. Their main counterfactual, however,
is not.

I demonstrate unit dependence in HM’s model by repeating their main counterfactual with
various values for L. As above, I use their data, model, and parameter values (other than
L). The results of this exercise are shown in Figure 1. The predicted percentage change in
output is increasing in L. For sufficiently low L it is negative, and for sufficiently large L it
is positive. As mentioned above, in the case of L = 1 chosen by HM (denoted by the dashed
vertical line) output decreases by 0.30%. Since the results of HM’s main counterfactual
depend on the arbitrary choice of total population L, their model is not well-specified.

Figure 1: % Change in Output in HM’s Counterfactual

0.4%

0.2%

0%

-0.2%

-0.4%

-0.6%
0.1 1 10 100 1000
Total Population
Notes: This figure shows the percentage change in total output in HM’s land-use deregulation counterfactual
as a function of total population L (plotted on a log scale). The vertical line highlights the case of L = 1
chosen by HM. In the counterfactual, the house price elasticity parameters γi are lowered in New York, San
Francisco, and San Jose. See Section 3 and Appendix A for more details. The results of this figure are obtained
using HM’s model, data, and parameter values.

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3.3 Intuition

To understand why the results of HM’s main counterfactual depend on population unit, it
is instructive to analyze their model when there are two locations. In order to obtain ana-
lytical results, in this subsection I focus on the free mobility version of HM’s model.5 This
model is identical to the imperfect mobility model except that the labor supply equation
β
(3) is replaced by the spatial indifference condition Wi Zi /Pi = V (equation 3 of HM). For
simplicity, here I assume that α = β = Zi = Pi = 1, η = 0, A1 > 1, and A2 = 1. The
equilibrium system is thus

Wi = Ai
γ
Pi = Li i

V = Wi /Pi

L = L1 + L2

Y = W1 L1 + W2 L2

Equilibrium requires
A1 L1−γ1 = (L − L1 )−γ2

Denote location 1’s employment share by s = L1 /L. The equilibrium condition can then
be written as
sγ1 = A1 (1 − s)γ2 Lγ2 −γ1 (11)

Except in the special case where γ1 = γ2 , L affects s and thus per-capita output y = Y/L =
(A1 − 1)s + 1. Note that y is strictly increasing in s since A1 > 1.

To fix ideas, consider the effect of a change in γ1 . The total derivative of the log of (11) is

γ1 γ2
ln(s)dγ1 + ds = − ds − ln(L)dγ1
s 1−s

5 See Appendix B for a numerical example.

6
 dy ds
Rearrange and substitute dγ1 = ( A1 − 1) dγ 1
to obtain

" #
dy ln(sL)
= (1 − A1 ) γ1 γ2 (12)
dγ1 s + 1− s

Equation (12) shows that the derivative of per-capita output with respect to γ1 depends on
L. If L is sufficiently small so that L1 = sL < 1, then per-capita output is increasing in γ1 .
The opposite is true if L is sufficiently large that sL > 1. In other words, HM’s model is
unit-dependent.

The source of unit dependence in HM’s model is how they model house prices. Utility
in each location is strictly decreasing in local population due to housing congestion: Vi =
Ai Li−γi . Equilibrium occurs where V1 = V2 . As in HM’s main counterfactual, suppose the
house price elasticity is reduced in the more productive location: γ1 decreases. This change
does not affect the V2 curve. In contrast, both the magnitude and sign of the shift in the V1
curve depends on L. If L is sufficiently small that L1 = sL < 1, the curve shifts down, and
if L1 = sL > 1, the curve shifts up. In the first case, s and y decrease, and in the second
case, they increase.

In HM’s model, L = 1, so Li < 1 and the first case obtains. Why does a decrease in γ1 make
location 1 less attractive? We would expect that, all else equal, relaxed land-use regulations
in i should reduce Pi and thus make i more attractive. HM model a reduction in land-use
regulations as a decrease in γi . However, in their model, a reduction in γi does not imply
a downward shift in the Pi curve. Instead, the direction of the shift depends on L. To see
this, differentiate the house price equation (2) with respect to γi :

dPi
= Pi ln( Li )
dγi

Both the magnitude and sign of the effect of γi on Pi depends on Li , which in turn depends
on L. In HM’s model ln( Li ) < 0, so lowering γi shifts the Pi curve up. For example, in their
factual equilibrium the population share of New York is 0.0464 and its house price elasticity
is γi = 1.3178. The counterfactual house price elasticity is γi = 1.2436. All else equal, the

7
counterfactual thus raises New York’s house prices by 0.04641.2436−1.3178 − 1 = 25.58%.6

HM seek to model a land-use deregulation in highly productive locations. However, the

way they model house prices implies that their counterfactual can either raise (making less
attractive) or lower (making more attractive) house prices in the treated locations, depend-
ing on L. With their choice of L = 1, the counterfactual shifts the house price curves in
the treated locations up, thus lowering their population shares in equilibrium. This is the
intuition for why HM’s model features unit dependence, as well as why their particular
choice of L implies that their main counterfactual would lower output.

4 Eliminating Unit Dependence

As discussed in Section 3.3, the source of unit dependence in HM’s model is their house
price specification (2). The house price elasticity parameters γi HM use are taken from Saiz
(2010). In Appendix C, I derive an alternative house price specification that is consistent
with the estimating equation used by Saiz:
  γi
li g
Pi = Pi (13)
li1970

where li is city i’s population share and g ≡ L/L1970 is total population growth since 1970.
Unlike (2), with (13) the effect of a change in γi on Pi does not depend on total population.
It does depend on population growth g, but unlike the population unit in a particular year,
g is not an arbitrary choice.7

In this section, I consider a modification to HM’s model where (2) is replaced with (13).

6 Of course, in general equilibrium, households respond to shifted house price curves by migrating. This
explains why the general equilibrium effect on New York’s house prices shown in Table 1 (+13.27%) is smaller
than the partial-equilibrium effect, as well as why New York’s population share falls in equilibrium.
7 In HM’s data, total population growth between 1970 and 2009 is g = 2.0414. In all the treated locations,

ln(li g/li1970 ) > 0: that is, the population level of each city increased from 1970 to 2009. Therefore, unlike
HM’s model, the partial equilibrium effect of lowering γi in the treated locations in the modified model is to
lower their house prices (this is also true in general equilibrium: see Table 2).

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This can be written in hat notation as (6)-(10), but with (7) replaced by

  γ 0 − γi
γ0 li g i
P̂i = Pˆ i lˆi i (14)
li1970

In contrast to HM’s equilibrium system (6)-(10), the modified equilibrium system does not
include L. That is, the unit dependence problem in HM’s original model can be avoided
by replacing (2) with (13).

I repeat HM’s main counterfactual with the modified model, again using their parameter
values and data. The percentage change in total output, as well as the population shares
and house prices in the treated cities, is shown in Table 2. The modified model predicts
that HM’s main counterfactual would increase output by 0.02%. While this estimate has
the same sign as what HM report, it is two orders of magnitude smaller.

Table 2: Modified Model Results

Total Output Population House Price

NY SF SJ NY SF SJ
+0.02% +0.10% +1.39% +1.49% −0.22% −1.93% −2.06%
Notes: This table displays the results from HM’s main counterfactual in the modified model. The modified
model is identical to HM’s model except that the house price equation (2) is replaced with (13). All values are
percentage changes relative to the baseline equilibrium. In this counterfactual, house price elasticities γi are
lowered in New York, San Francisco, and San Jose.

5 Conclusion

HM find that reducing land-use regulations in three highly productive cities would gen-
erate a large increase in aggregate output. In this note, I show that their model actually
predicts that this counterfactual would decrease output. I document errors in their code
which account for this discrepancy. Furthermore, I show that the results of their model
are not robust to the choice of population unit. I propose a modification to their model
which makes its results invariant to this arbitrary choice. The modified model predicts that
their deregulation experiment would raise output, but the effect is two orders of magnitude
smaller than what they report.

9
References

D EKLE , R., J. E ATON , AND S. K ORTUM (2008): “Global rebalancing with gravity: Measur-
ing the burden of adjustment,” IMF Economic Review, 55, 511.

G YOURKO , J., A. S AIZ , AND A. S UMMERS (2008): “A new measure of the local regula-
tory environment for housing markets: The Wharton Residential Land Use Regulatory
Index,” Urban Studies, 45, 693–729.

H SIEH , C.-T. AND E. M ORETTI (2019): “Housing constraints and spatial misallocation,”
American Economic Journal: Macroeconomics, 11, 1–39.

S AIZ , A. (2010): “The geographic determinants of housing supply,” The Quarterly Journal of
Economics, 125, 1253–1296.

10
A Saiz (2010) House Price Elasticity Estimates

HM take estimates for local house price elasticities γi from the second column of Saiz (2010)
Table 5. Saiz estimates an IV regression of the form

∆ log Pi = βLAND (Unavailable Landi × ∆ log Qi ) (15)

+ βPOP, LAND (log 1970 Populationi × Unavailable Landi × ∆ log Qi )

+ βREG [log(WRLURIi + 3) × ∆ log Qi ] + ∑ Ri + constant + ε i
j

where ∆ denotes the change in a variable between 1970 and 2000, P is the house price,
Q is number of households, unavailable land is the fraction of land within a 50 kilometer
radius that is unsuitable for development, WRLURI is the Wharton Residential Land Use
j
Regulatory Index, Ri are region fixed effects (for regions j ∈ {1, 2, 3}), and ε i is the residual.
In footnote 11, Saiz explains that he adds 3 to WRLURI to ensure that log(WRLURI) has
positive support.

The house price elasticities that HM use in their factual equilibrium are the values

∆ log Pi
γi =
∆ log Qi

predicted by (15). For treated cities in their counterfactual, the counterfactual house price
elasticity is the one that would obtain if WRLURIi were replaced with the median regula-
tion level:

γi0 = γi + β̂REG [log(WRLURImedian + 3) − log(WRLURIi + 3)]

where β̂REG = 0.28 and WRLURImedian is the median WRLURI (which is -0.1965). Table 3
displays WRLURI, γi , and γi0 for each of the three treated cities in HM’s counterfactual. In
all three cases, the counterfactual lowers the house price elasticity.

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 Table 3: Counterfactual House Price Elasticities

City WRLURI Elasticity γ Counterfactual Elasticity γ0

New York 0.6544 1.3178 1.2436
San Francisco 0.7249 1.5115 1.4320
San Jose 0.2088 1.3152 1.2774
Notes: This table displays the baseline house price elasticity γ and counterfactual house price elasticity γ0
for the three treated cities in HM’s main counterfactual. WRLURI is the Wharton Residential Land Use
Regulatory Index (Gyourko et al., 2008). In the counterfactual, γ is changed to the value that would obtain,
according to Saiz (2010)’s estimates, if WRLURI were changed to the median value in the treated cities.

B 2-Location Numerical Example

In this Appendix, I demonstrate unit dependence in HM’s model using a 2-location nu-
merical example. As in Section 3.3, to clarify mechanisms here I focus on the free mobility
version of their model. The equilibrium system is

1− α − η
η −1
Wi = Ai Li
γ
Pi = Pi Li i
β
V = Zi Wi /Pi

L = L1 + L2
W1 L1 + W2 L2
Y=
α

Following HM, I set α = 0.65, η = 0.25, and β = 0.32. For the remaining parameters, I use
Ai = (1.5, 1) and Pi = Zi = 1. The first row of Table 4 shows equilibrium when L = 1 and
γi = (1.4, 1.1). In this case, per-capita output is y = Y/L = 2.2420. Now consider what
happens when γ is lowered in the more productive location: γi = (1.2, 1.1). Equilibrium
in this case is shown in the second row of Table 4. Per-capita output is y = 2.2372, so the
change in γ with L = 1 induces a percentage change in output of −0.2133. The final two
rows of Table 4 show equilibria for the same change in γ when L = 10. With L = 10, the
percentage change in per-capita output is +1.4502.

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 Table 4: Numerical Example

L (γ1 , γ2 ) ( L1 , L2 ) V y % change y
1 (1.4, 1.1) (0.7115, 0.2885) 1.8282 2.2420
1 (1.2, 1.1) (0.7024, 0.2976) 1.8008 2.2372 −0.2133
10 (1.4, 1.1) (6.1671, 3.8329) 0.5209 1.6096
10 (1.2, 1.1) (6.7040, 3.2960) 0.5605 1.6329 +1.4502
This table shows equilibria in the 2-location numerical example. The same change in γ can either lower or
raise per-capita output y, depending on the choice of total population L.

Figure 2 illustrates equilibria in this example visually. The x-axis is location 1’s population
1− α − η 1− α − η
η −1 − βγ1 η −1 − βγ2
L1 . The figure shows V1 = A1 Li and V2 = A2 (L − L1 ) as functions of
L1 . Equilibrium occurs where V1 = V2 . When γ1 is lowered, the V2 curve is unaffected.
In contrast, the V1 curve shifts down when L1 < 1, and up when L1 > 1. The key insight
is that whether the equilibrium value of L1 is less than or greater than 1 depends on total
population L. When L = 1, L1 < 1 and so the V1 curve shifts down. When L = 10, the
opposite is true. Hence when L = 1, the change in γ lowers L1 , but when L = 10, the same
change in γ raises L1 . Since location 1 is more productive, this leads to a decrease in output
when L = 1 but an increase when L = 10.

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 Figure 2: Numerical Example Illustration

Notes: This figure visually illustrates equilibria in the 2-location numerical example. The left panel shows the
case with total population L = 1, and the right panel shows the case with L = 10. Equilibrium occurs where
V1 = V2 . When L = 1, lowering γ1 shifts the V1 curve down while leaving the V2 curve unchanged. This
implies a decrease in L1 , thus lowering total output (since location 1 is more productive). In contrast, when
L = 10, lowering γ1 shifts the V1 curve up. In this case, reducing γ1 raises the population share of location 1,
thus increasing output.

C Alternative House Price Equation (13) Derivation

Saiz (2010) uses an estimating equation of the form8

∆ ln Pi = γi ∆ ln Hi + ΓXi + ε i (16)

where ∆ denotes the change in a variable between 1970 and 2000, Hi is number of housing
units, Xi is a vector of controls, and ε i is a residual. Assuming that Hi is proportional to Li ,
and that the estimated relationship holds between 1970 and the year of interest (2009 for

8 See equation (3) of Saiz (2010)

14
HM’s main counterfactual), (16) implies
  γi
Li
Pi = Pi1970 exp(ΓXi + ε i ) (17)
Li1970

where Pi and Li are the house price and population level, respectively, of city i. Define
Pi ≡ Pi1970 exp(ΓXi + ε i ) and let g ≡ L/L1970 denote total population growth since 1970.
Equation (17) can then be written as the alternative house price equation (13).

D Computational Algorithm

I compute the percentage change in output after a change in γi in HM’s model by solving
the system of equations (6)-(10). Given a feasible guess for the vector of population share
changes {lˆi }iI=1 (by feasible I mean li lˆi ∈ (0, 1) for all i), we can compute Ŵi , P̂i , and Ŷ using
equations (6), (7), and (10). Given Ŵi and P̂i , the population share changes implied by the
guess are
−β
(Ŵi Ẑi P̂i )θ
f (lˆi ) = −β
∑ j l j (Ŵj Ẑj P̂j )θ

Numerically solving for equilibrium consists of finding a feasible {lˆi }iI=1 vector such that
the remaining two equilibrium conditions (8) and (9) are satisfied, to within a tolerance ε:

max |lˆi − f (lˆi )| ≤ ε and |1 − ∑ li lˆi | ≤ ε

i i

This requires solving a system of I + 1 equations in I unknowns, where I is the number of

locations. Note however that if equation (9) is satisfied and (8) holds for all locations except

15
a single location k, then
 
−β
(Ŵi Ẑi P̂i )θ
ˆ
lk lk + ∑ li 
−β θ
 =1
i 6=k ∑ j l j (Ŵj Ẑj P̂j )
−β
lk (Ŵk Ẑk P̂k )θ
ˆ
⇒ lk lk = −β
∑ j l j (Ŵj Ẑj P̂j )θ
−β
ˆ
(Ŵk Ẑk P̂k )θ
⇒ lk = −β
∑ j l j (Ŵj Ẑj P̂j )θ

and so (8) must hold for k as well. In other words, solving equilibrium requires finding a
feasible {lˆi }iI=1 vector such that (8) holds for I − 1 locations and (9) is satisfied.

I solve this system of I equations in I unknowns using Matlab’s fsolve function with a
tolerance of ε = 10−10 . As an accuracy check, I verify that equations (1)-(5) hold as well. To
do this, I first recover the parameter values (Ai , Pi , Zi ) that match the factual data using the
equations from Section 2. I then compute the level of all counterfactual equilibrium objects:
Wi0 = Wi Ŵi , Pi0 = Pi P̂i , Li0 = Li lˆi , and Yi0 = Yi Ŷi . Finally, I verify that equations (1)-(5) all
hold to within a tolerance of 10−10 L for parameters (Ai , Pi , Zi , L) and equilibrium objects
(Wi0 , Pi0 , Li0 , Y 0 ) when the house price elasticity parameters are γi0 .

The algorithm for computing equilibria in the modified model is the same as for HM’s
model, except that the house price equation (7) is replaced with (14).

E HM Coding Errors

HM’s code contains errors that account for the discrepancy between the result they report
and the one I obtain when replicating their counterfactual. In this Appendix, I document
the following inaccuracies in their posted code reg_aej_revision2:

1. Lines 986-998: counterfactual wages are computed incorrectly. As a result, HM equa-

tion (2) is not satisfied.

16
 2. Lines 1047-1078: counterfactual employment shares are computed incorrectly. As a
result, HM equation (10) is not satisfied.

The code reg_aej_revision2_errors documents these errors. The first 1128 lines are identical
to reg_aej_revision2 except for the following modifications:

1. Comment lines 366-368, 402-404, 438, 467-469, 518-520, 589-591, and 672-674 to sup-
press creation of figures and tables.

2. Select the land-use deregulation counterfactual by commenting lines 734-772 and un-
commenting line 897.

3. Select the imperfect mobility model by uncommenting lines 913 and 914.

4. Select the main counterfactual by commenting lines 973-979.

5. Comment the last part of line 1008 to keep the counterfactual house price elasticity
variable “new_inver”, which is needed for my accuracy checks.

On lines 1136-1146 of reg_aej_revision2_errors, I perform the following accuracy checks:

1. HM equation (2) implies that

 1−η −α−1 η
Li0 Wi0

− =0
Li Wi

where x is a variable in the baseline equilibrium and x 0 is a variable from the coun-
terfactual. I compute the left-hand side of this expression in HM’s code on line 1136.
I call this variable “eqn2_error,” which is 0 if HM equation (2) is satisfied.

2. HM equation (10), together with their assumption that ∑i Li = 1, implies that

0β
(Wi0 Zi0 /Pi )θ
Li0 − 0β
=0
∑ j (Wj0 Zj0 /Pj )θ

I compute the left-hand side of the expression in HM’s code on lines 1140-1146. I call
this variable “eqn10_error,” which is 0 if HM equation (10) is satisfied.

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 Table 5: HM Coding Errors

eqn2_error eqn10_error
Mean 0.2064761 0
Standard Deviation 0.3023935 0.0163814
Minimum -1.010414 -0.1546624
Maximum 0.7991462 0.098575
10th Percentile -0.1352363 0.0000918
25th Percentile 0.0680979 0.0002578
50th Percentile 0.2362058 0.0007966
75th Percentile 0.4061416 0.0019413
90th Percentile 0.5327727 0.003834
Observations 220 220
Notes: This table displays summary statistics for the variables generated by the code
reg_aej_revision2_errors. eqn2_error checks whether HM equation (2) is satisfied in HM’s code, and
eqn10_error checks whether HM equation (10) is satisfied. Both variables would be 0 if HM’s equilibrium
conditions were satisfied.

Table 5 displays summary statistics of the accuracy check variables. Both are further from
0 than can be accounted for by numerical error. HM’s result is based on variables that do
not satisfy the equilibrium conditions of their model. This explains why I obtain a different
value when I attempt to replicate their main result.

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