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Household Expenditures, Wages, Rents

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  • Morris A. Davis

    (University of Wisconsin-Madison)

  • Francois Ortalo-Magne

    (University of Wisconsin-Madison)

Abstract

New evidence from the 1980, 1990, and 2000 Decennial Census of Housing indicates that expenditure shares on housing are constant over time and across U.S. metropolitan statistical areas (MSA). Consistent with this observation, we consider a model in which identical households with Cobb-Douglas preferences for housing and non-housing consumption choose a location and locations differ with respect to income earned by their residents. The model predicts that the relative price of housing of any two MSAs disproportionately reflects differences in incomes of those MSAs and is independent of housing supply in each MSA. According to the predictions of our calibrated model, the dispersion of rental prices across low- and high- wage MSAs should be larger than we observe: High-wage MSAs like San Francisco are puzzlingly inexpensive relative to low-wage MSAs like Pittsburgh. (Copyright: Elsevier)

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Bibliographic Info

Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 14 (2011)
Issue (Month): 2 (April)
Pages: 248-261

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Handle: RePEc:red:issued:09-92

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Keywords: Housing expenditures; Expenditure shares; Cobb-Douglas preferences; Multi-city models;

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References

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  1. Robert E. Lucas & Esteban Rossi-Hansberg, 2002. "On the Internal Structure of Cities," Econometrica, Econometric Society, vol. 70(4), pages 1445-1476, July.
  2. Davis, Morris A. & Heathcote, Jonathan, 2007. "The price and quantity of residential land in the United States," Journal of Monetary Economics, Elsevier, vol. 54(8), pages 2595-2620, November.
  3. Joseph Gyourko & Christopher Mayer & Todd Sinai, 2013. "Superstar Cities," American Economic Journal: Economic Policy, American Economic Association, vol. 5(4), pages 167-99, November.
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  17. Mark Aguiar & Erik Hurst, 2008. "Deconstructing Lifecycle Expenditure," NBER Working Papers 13893, National Bureau of Economic Research, Inc.
  18. Robert E. Lucas, Jr., 2001. "Externalities and Cities," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(2), pages 245-274, April.
  19. Hernán D. Rozenfeld & Diego Rybski & Xavier Gabaix & Hernán A. Makse, 2009. "The Area and Population of Cities: New Insights from a Different Perspective on Cities," NBER Working Papers 15409, National Bureau of Economic Research, Inc.
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