In the gravity model, imputed iceberg costs seems to be translated into a proxy for distance and thereby location. Am I correct that this paper assumes identical institutions across trading cities? It seems likely to me that some cities along a trading route would have more crime than others, and therefore have higher observed iceberg costs. Would the current model impute an overly large distance to these cities? If so, is there any way to incorporate crime levels or institutions into the gravity model?
In the gravity model, imputed iceberg costs seems to be translated into a proxy for distance and thereby location. Am I correct that this paper assumes identical institutions across trading cities? It seems likely to me that some cities along a trading route would have more crime than others, and therefore have higher observed iceberg costs. Would the current model impute an overly large distance to these cities? If so, is there any way to incorporate crime levels or institutions into the gravity model?