Recovering Preferences from a Dual-Market Locational Equilibrium
AbstractThis paper develops a new structural estimator that uses the properties of a market equilibrium, together with information on households and their observed location choices, to recover horizontally differentiated preferences for a vector of local public goods. The estimation is consistent with equilibrium capitalization of local public goods and recognizes that job and house location choices are interrelated. By using set identification to distinguish the identifying power of restrictions on the indirect utility function from the identifying power of assumptions on the distribution of preferences, the estimator provides a new perspective on characteristics-based models of the demand for a differentiated product. The estimator is used to recover distributions of the marginal willingness-to-pay for improved air quality in Northern California’s two largest population centers: the San Francisco and Sacramento metropolitan areas. The average marginal willingness-to-pay increases by up to 190% when job opportunities are included as a dimension of location choice.
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Bibliographic InfoPaper provided by Australian Agricultural and Resource Economics Society in its series 2008 Conference (52nd), February 5-8, 2008, Canberra, Australia with number 5989.
Date of creation: 2008
Date of revision:
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Consumer/Household Economics; Institutional and Behavioral Economics; Research Methods/ Statistical Methods;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-11-18 (All new papers)
- NEP-ECM-2008-11-18 (Econometrics)
- NEP-URE-2008-11-18 (Urban & Real Estate Economics)
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