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Title: A Discrete Choice Equilibrium Approach to Valuing Large Environmental Changes

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  • Constant Tra

    ()
    (Department of Economics, University of Nevada, Las Vegas)

Abstract

This study develops a discrete choice locational equilibrium model to evaluate the benefits of the air quality improvements that occurred in the Los Angeles area following the 1990 Clean Air Act Amendments (CAAA). The discrete choice equilibrium approach accounts for the fact that air quality improvements brought about by the 1990 CAAA will change housing choices and prices. The study also provides new evidence for the distributional welfare impacts of the 1990 CAAA in the Los Angeles area. Findings suggest that the air quality improvements that occurred in the Los Angeles area between 1990 and 2000 provided substantial general equilibrium benefits to households. The analysis reveals noticeable differences between partial and general equilibrium welfare gains, demonstrating that ignoring equilibrium effects will likely misrepresent the benefits of large environmental changes. In addition, we find that the equilibrium welfare impacts of the 1990 CAAA in the Los Angeles area varied significantly across income groups.

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File URL: http://web.unlv.edu/projects/RePEc/pdf/0922.pdf
File Function: First version, 2008
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Bibliographic Info

Paper provided by University of Nevada, Las Vegas , Department of Economics in its series Working Papers with number 0922.

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Length: 48 pages
Date of creation: Apr 2009
Date of revision:
Handle: RePEc:nlv:wpaper:0922

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Keywords: benefit analysis; ozone improvement; locational equilibrium; discrete choice;

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References

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  1. Timothy J. Bartik, 1988. "Measuring the Benefits of Amenity Improvements in Hedonic Price Models," Land Economics, University of Wisconsin Press, vol. 64(2), pages 172-183.
  2. Walsh, Randy, 2007. "Endogenous open space amenities in a locational equilibrium," Journal of Urban Economics, Elsevier, vol. 61(2), pages 319-344, March.
  3. Takeuchi, Akie & Cropper, Maureen L. & Bento, Antonio M., 2007. "Measuring the Welfare Effects of Slum Improvement Programs: The Case of Mumbai," Working Papers 127020, Cornell University, Department of Applied Economics and Management.
  4. Maria Marta Ferreyra, 2009. "An Empirical Framework for Large-Scale Policy Analysis, with an Application to School Finance Reform in Michigan," American Economic Journal: Economic Policy, American Economic Association, vol. 1(1), pages 147-80, February.
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  7. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-90, July.
  8. Joseph A. Herriges & Catherine L. Kling, 1999. "Nonlinear Income Effects in Random Utility Models," The Review of Economics and Statistics, MIT Press, vol. 81(1), pages 62-72, February.
  9. Smith, V Kerry & Huang, Ju-Chin, 1995. "Can Markets Value Air Quality? A Meta-analysis of Hedonic Property Value Models," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 209-27, February.
  10. Tra, Constant I., 2007. "Equilibrium Welfare Impacts of the 1990 Clean Air Act Amendments in the Los Angeles Area," Working Papers 7341, University of Maryland, Department of Agricultural and Resource Economics.
  11. Quigley, John M., 1985. "Consumer choice of dwelling, neighborhood and public services," Regional Science and Urban Economics, Elsevier, vol. 15(1), pages 41-63, February.
  12. Patrick Bayer & Robert McMillan & Kim Rueben, 2003. "An Equilibrium Model of Sorting in an Urban Housing Market: A Study of the Causes and Consequences of Residential Segregation," Working Papers 03-01, Center for Economic Studies, U.S. Census Bureau.
  13. Patrick Bayer & Fernando Ferreira & Robert McMillan, 2007. "A Unified Framework for Measuring Preferences for Schools and Neighborhoods," NBER Working Papers 13236, National Bureau of Economic Research, Inc.
  14. 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.
  15. Poterba, James M, 1992. "Taxation and Housing: Old Questions, New Answers," American Economic Review, American Economic Association, vol. 82(2), pages 237-42, May.
  16. Patrick Bayer & Christopher Timmins, 2003. "Estimating Equilibrium Models of Sorting across Locations," Working Papers 862, Economic Growth Center, Yale University.
  17. Allen Klaiber, H. & Phaneuf, Daniel J., 2010. "Valuing open space in a residential sorting model of the Twin Cities," Journal of Environmental Economics and Management, Elsevier, vol. 60(2), pages 57-77, September.
  18. Holger Sieg & V. Kerry Smith & H. Spencer Banzhaf & Randy Walsh, . "Estimating the General Equilibrium Benefits of Large Changes in Spatially Delineated Public Goods," GSIA Working Papers 2003-07, Carnegie Mellon University, Tepper School of Business.
  19. Palmquist, Raymond B., 1988. "Welfare measurement for environmental improvements using the hedonic model: The case of nonparametric marginal prices," Journal of Environmental Economics and Management, Elsevier, vol. 15(3), pages 297-312, September.
  20. Palmquist, Raymond B., 2006. "Property Value Models," Handbook of Environmental Economics, in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 2, chapter 16, pages 763-819 Elsevier.
  21. 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.
  22. Anas, Alex, 1980. "A probabilistic approach to the structure of rental housing markets," Journal of Urban Economics, Elsevier, vol. 7(2), pages 225-247, March.
  23. Kuminoff, Nicolai V., 2008. "Recovering Preferences from a Dual-Market Locational Equilibrium," 2008 Conference (52nd), February 5-8, 2008, Canberra, Australia 5989, Australian Agricultural and Resource Economics Society.
  24. 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.
  25. Kerry Smith, V. & Sieg, Holger & Spencer Banzhaf, H. & Walsh, Randall P., 2004. "General equilibrium benefits for environmental improvements: projected ozone reductions under EPA's Prospective Analysis for the Los Angeles air basin," Journal of Environmental Economics and Management, Elsevier, vol. 47(3), pages 559-584, May.
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