The Determinants of Joint Residential and Job Location Choices: A Mixed Logit Approach

This paper empirically investigates the household's decision to reside and work either in the central metropolitan area, or in the surrounding nonmetropolitan area, or to commute between the two regions. As economic theory suggests the location decision amounts to trading off wages, housing costs, and commuting time. A mixed logit model is employed to quantify the interaction effects of these economic factors in the joint residential and job location choice. The empirical approach does not rely on the restrictive IIA assumption and allows for arbitrary correlation patterns between coefficients. Using data from a recent survey of more than half a million German households, the elasticities of individual location choice with respect to wages, housing costs, and commuting time are estimated. The results show that individual valuations of these factors are of the expected signs but vary substantially in the population. Shifts in consumer surplus and in the spatial distribution of households that are associated with changes in the determinants of location choice are calculated based on the empirical estimates.