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Recovering Preferences from a Dual-Market Locational Equilibrium

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  • Kuminoff, Nicolai V.

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.

Suggested Citation

  • 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.
    • Handle: RePEc:ags:aare08:5989
    DOI: 10.22004/ag.econ.5989
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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. Philip E. Graves, 2010. "Benefit-Cost Analysis of Environmental Projects: A Plethora of Systematic Biases," CESifo Working Paper Series 3144, CESifo.
    3. 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.
    4. 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.
    5. Patrick Bayer & Robert McMillan & Alvin Murphy & Christopher Timmins, 2016. "A Dynamic Model of Demand for Houses and Neighborhoods," Econometrica, Econometric Society, vol. 84, pages 893-942, May.
    6. Jacob Fishman & V. Kerry Smith, 2013. "A Direct Test of the "Explanation" for Incomplete Stratification in Vertical Sorting Models," NBER Working Papers 19387, National Bureau of Economic Research, Inc.

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    Keywords

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