Individuals and firms are impacted by the location where they live and operate. The characteristics of the people they interact with, the businesses they can access, potential business partners, as well as local infrastructure, influence their actions and the rewards for their efforts. In turn, policies, technological changes, and shocks that affect these local characteristics will influence their decisions on where to locate and in which environment to operate. These choices determine the local economic implications of these phenomena and, when aggregated, their broader macroeconomic consequences. Over the last couple of decades, economists have developed and quantified economic models of the distribution of economic activity across locations that have been useful for analyzing many economic phenomena; examples include urban infrastructure projects and housing policies, highway systems, the local and aggregate impacts of trade frictions and information technologies, and shocks related to climate change and other natural phenomena.

Still, much work remains. Many of these frameworks are static or include only rudimentary forms of dynamics that fail to capture the rich heterogeneity in the economy, such as the accumulation of factors like human capital, housing, business structures, or different types of installed capital. Additionally, important types of local heterogeneity across individuals—such as age, education, assets, wealth, or ability—and firms—such as productivity, age, specific industry, and organizational structure—are often ignored to keep models tractable. Creating effective tools to realistically assess the economic effects of most phenomena at both local and aggregate levels requires incorporating these key characteristics. This incubator will bring together and coordinate some of the world’s leading experts in these areas to develop theoretical and empirical tools and applications to enhance our understanding of the impact of economic phenomena across space and over time.