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Recovering Preferences from a Dual-Market Locational Equilibrium

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  • Kuminoff, Nicolai V.
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    Abstract

    This 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 Info

    Paper provided by Australian Agricultural and Resource Economics Society in its series 2008 Conference (52nd), February 5-8, 2008, Canberra, Australia with number 5989.

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    Date of creation: 2008
    Date of revision:
    Handle: RePEc:ags:aare08:5989

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    Related research

    Keywords: Consumer/Household Economics; Institutional and Behavioral Economics; Research Methods/ Statistical Methods;

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    1. Feenstra, Robert C & Levinsohn, James A, 1995. "Estimating Markups and Market Conduct with Multidimensional Product Attributes," Review of Economic Studies, Wiley Blackwell, vol. 62(1), pages 19-52, January.
    2. Starrett, David A, 1981. "Land Value Capitalization in Local Public Finance," Journal of Political Economy, University of Chicago Press, vol. 89(2), pages 306-27, April.
    3. Holger Sieg & V. Kerry Smith & H. Spencer Banzhaf & Randy Walsh, 2004. "Estimating The General Equilibrium Benefits Of Large Changes In Spatially Delineated Public Goods," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(4), pages 1047-1077, November.
    4. Phaneuf, Daniel J. & Smith, V. Kerry, 2006. "Recreation Demand Models," Handbook of Environmental Economics, in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 2, chapter 15, pages 671-761 Elsevier.
    5. Patrick Bayer & Nathaniel Keohane & Christopher Timmins, 2006. "Migration and Hedonic Valuation: The Case of Air Quality," NBER Working Papers 12106, National Bureau of Economic Research, Inc.
    6. Sieg, Holger & Smith, V. Kerry & Banzhaf, H. Spencer & Walsh, Randy, 2002. "Interjurisdictional housing prices in locational equilibrium," Journal of Urban Economics, Elsevier, vol. 52(1), pages 131-153, July.
    7. V. Kerry Smith & H. Spencer Banzhaf, 2004. "A Diagrammatic Exposition of Weak Complementarity and the Willig Condition," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(2), pages 455-466.
    8. Palmquist, Raymond B., 2005. "Weak complementarity, path independence, and the intuition of the Willig condition," Journal of Environmental Economics and Management, Elsevier, vol. 49(1), pages 103-115, January.
    9. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416.
    10. Paul W. Rhode & Koleman S. Strumpf, 2003. "Assessing the Importance of Tiebout Sorting: Local Heterogeneity from 1850 to 1990," American Economic Review, American Economic Association, vol. 93(5), pages 1648-1677, December.
    11. Epple, Dennis & Platt, Glenn J., 1998. "Equilibrium and Local Redistribution in an Urban Economy when Households Differ in both Preferences and Incomes," Journal of Urban Economics, Elsevier, vol. 43(1), pages 23-51, January.
    12. John Geweke, 1995. "Monte Carlo simulation and numerical integration," Staff Report 192, Federal Reserve Bank of Minneapolis.
    13. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-90, July.
    14. Patrick Bayer & Robert McMillan & Kim Rueben, 2004. "An Equilibrium Model of Sorting in an Urban Housing Market," NBER Working Papers 10865, National Bureau of Economic Research, Inc.
    15. Dennis Epple & Holger Sieg, 1999. "Estimating Equilibrium Models of Local Jurisdictions," Journal of Political Economy, University of Chicago Press, vol. 107(4), pages 645-681, August.
    16. Roback, Jennifer, 1982. "Wages, Rents, and the Quality of Life," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1257-78, December.
    17. Scotchmer, Suzanne, 1985. "Hedonic prices and cost/benefit analysis," Journal of Economic Theory, Elsevier, vol. 37(1), pages 55-75, October.
    18. Blomquist, Glenn C & Berger, Mark C & Hoehn, John P, 1988. "New Estimates of Quality of Life in Urban Areas," American Economic Review, American Economic Association, vol. 78(1), pages 89-107, March.
    19. Rosa L. Matzkin, 1999. "Nonparametric Estimation of Nonadditive Random Functions," Working Papers 38, Universidad de San Andres, Departamento de Economia, revised Sep 2001.
    20. Polinsky, A Mitchell, 1977. "The Demand for Housing: A Study in Specification and Grouping," Econometrica, Econometric Society, vol. 45(2), pages 447-61, March.
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    Cited by:
    1. Tra, Constant I., 2010. "A discrete choice equilibrium approach to valuing large environmental changes," Journal of Public Economics, Elsevier, vol. 94(1-2), pages 183-196, February.
    2. Patrick J. Bayer & Robert McMillan & Alvin Murphy & Christopher Timmins, 2011. "A Dynamic Model of Demand for Houses and Neighborhoods," Levine's Working Paper Archive 786969000000000213, David K. Levine.
    3. Patrick Bayer & Robert McMillan & Alvin Murphy & Christopher Timmins, 2011. "A Dynamic Model of Demand for Houses and Neighborhoods," NBER Working Papers 17250, National Bureau of Economic Research, Inc.
    4. Constant Tra, 2009. "Title: A Discrete Choice Equilibrium Approach to Valuing Large Environmental Changes," Working Papers 0922, University of Nevada, Las Vegas , Department of Economics.

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