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Choosing Your Pond: Location Choices and Relative Income

Author

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  • Nicolas L. Bottan
  • Ricardo Perez-Truglia

Abstract

We provide unique revealed-preference evidence that, when choosing where to live, individuals care about their position in the income distribution. We study the decisions of senior medical students in the National Resident Matching Program (NRMP). They must choose between programs that offer similar nominal incomes, but in cities with different costs of living and income distributions. We conduct a survey experiment with 1,100 NRMP participants to elicit their perceptions about cost of living and relative income in their prospective cities and their rank order submissions. To assess the direction of causality, we embed an information-provision experiment that generates exogenous variations in perceived cost of living and relative income. We find evidence that, in addition to the cost of living, individuals care about their relative income. Moreover, we find substantial and meaningful heterogeneity by relationship status in preferences for relative income. We conduct a complementary survey experiment to assess the robustness of our results and to disentangle confounding factors. The evidence is consistent with a combination of relative concerns and dating expectations.

Suggested Citation

  • Nicolas L. Bottan & Ricardo Perez-Truglia, 2017. "Choosing Your Pond: Location Choices and Relative Income," NBER Working Papers 23615, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:23615
    Note: PE POL
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    References listed on IDEAS

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    1. Michael J. Boskin & Eytan Sheshinski, 1978. "Optimal Redistributive Taxation When Individual Welfare Depends upon Relative Income," The Quarterly Journal of Economics, Oxford University Press, vol. 92(4), pages 589-601.
    2. Mounir Karadja & Johanna Mollerstrom & David Seim, 2017. "Richer (and Holier) Than Thou? The Effect of Relative Income Improvements on Demand for Redistribution," The Review of Economics and Statistics, MIT Press, vol. 99(2), pages 201-212, May.
    3. Marianne Bertrand & Emir Kamenica & Jessica Pan, 2015. "Gender Identity and Relative Income within Households," The Quarterly Journal of Economics, Oxford University Press, vol. 130(2), pages 571-614.
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    More about this item

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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