This dissertation research proposes to develop and estimate a general equilibrium model of housing and labor markets based on consumers' locational choices. The framework recognizes the prospect that consumers' valuation of non-market goods may be reflected in both house prices and wage rates (dual-market capitalization). The research has three objectives: (1) to investigate the theoretical and empirical significance of dual-market capitalization for non-market goods such as environmental amenities; (2) to generalize existing models of household sorting to allow an interrelated job-house choice and to allow consumers to differ in their relative preferences for multiple public goods; (3) to develop a model that can calculate general equilibrium welfare effects arising from a policy which simultaneously affects labor and housing markets through spatially differentiated environmental amenities.
To meet the objectives the principal investigators will develop a database for California's major Metropolitan Statistical Areas that combines information on the sale prices for residential properties and characteristics (including location) with spatially delineated information on wages, job opportunities, commuting time, crime, school quality, open space, and air quality. GIS software will be used to merge the data into representative "communities," such as census tracts or school districts. The computational model will use these data to recover estimates for the distributions of preferences for multiple public goods (including environmental amenities) that are consistent with maximization of utility and a locational equilibrium involving housing and labor markets. The recovered preference distributions will then be used to simulate the effects of public policies on wages, land rents, and consumer welfare. Analysis of results will focus on (1) interpreting the preference distributions and (2) analyzing the extent to which consumer welfare from changes in public goods is revealed through spatial variation in rents and wages.
Intellectual Merit: The theoretical model generalizes the existing theoretical models that describe the factors influencing the capitalization of spatially delineated public goods. This is accomplished by extending sorting models to allow markets for both land and labor to be linked with consumers' valuation of local public goods. To test the extent of dual-market capitalization, the empirical model will explicitly allow consumers to differ in their relative preferences for multiple community attributes, expanding the notion of heterogeneity used in current revealed preference approaches. The resulting general equilibrium model of household sorting will incorporate the labor market, generalizing existing locational equilibrium models. The model will be suitable for calculating benefits from an array of public policies, including policies that affect both labor markets and environmental amenities.
Broader Impacts: This research will benefit society by providing new information about how consumers value non-market goods and how environmental and other policies that alter local public goods affect consumers. The scale and spatial resolution of the empirical model will allow researchers to investigate the environmental justice of a public policy by assessing its impacts on particular demographic groups. The dissertation will also enhance the infrastructure for research and education by developing a set of computational algorithms for solving locational equilibrium models. These algorithms will be written in a standard programming language (e.g. Matlab) and made freely available on the internet. Research results will be disseminated through the principal investigators' websites, academic publications, and presentations to a variety of audiences.
