This project develops and applies measures of quality of life, firm productivity, and amenity values across cities. The value of amenities to households, which determine quality of life, is inferred by the cost of living, adjusted for the local income level, which households accept to pay to enjoy more those amenities. The value of amenities to firms is inferred by the input costs firms are willing to pay in order to take advantage of those amenities. The theoretical model is applied using data on wages and housing costs from the U.S. Census to determine the economic value of amenities (or disamenites) that vary across cities, broadly interpreted to include city characteristics such as climate, pollution, taxes, and public infrastructure. Overall quality of life and productivity for metro areas is also calculated.
The theoretical model in this project improves on the standard model, often attributed to Rosen (1979) and Roback (1982), by making several improvements. First, federal taxes and transfers on income, including housing-tax deductions, are included. Second, households earn income from land and capital, as well as labor. Third, cost-of-living differences account for both housing and non-housing costs. Fourth, the market for housing is modeled separately from the market for land. Fifth, predictions of the model on local employment and other non-price quantities are derived and considered. These adjustments above lead to more accurate measures of quality of life, productivity, and overall amenity values. In practice they require that greater weight be put on housing costs relative to wages in determining input-cost and wage-adjusted cost-of-living indices. Furthermore, they account for how amenities influence federal tax revenues as well as local land rents.
The model is applied to address five very policy-relevant issues in the United States. First, the quality-of-life of households and the productivity for over 200 metropolitan areas is to be measured over several decades. Second, the value of public infrastructure to households and firms, and its impact on welfare and federal tax revenues, is estimated. Third, it will be determined whether smaller metro areas are nicer places to live than larger metro areas, and whether this difference is changing over time. Fourth, the values of climate amenities, such as mild seasons, sunshine, and precipitation are estimated and used to estimate the costs of climate change to measurable income and harder-to-measure quality of life. Fifth, the impact of regulations on residential and commercial land use on housing costs and welfare will be estimated using additional data on office rents and land rents.
Broader Impacts: This research will help other investigators estimate the value of all types of local characteristics with various data sources in the U.S. and other countries, improving on previous measures. Estimates of quality of life and productivity will shed light on the question of whether consumption amenities or employment opportunities are more important in deciding where people locate. The research applications should produce results that benefit society by providing estimates directly related to important and urgent policy areas. Revised estimates of the value of public infrastructure illustrate that the value of these investments were seriously underestimated in previous research, and may demonstrate that large-scale public investment may have beneficial long-run microeconomic effects as well as beneficial short-run macroeconomic effects. Estimates of the impact of urbanization on welfare, and its changes over time, will shed light on the impact that urbanization from economic growth and policy has on welfare both in the short and long run, which is an especially pressing issue in developing countries. The application of hedonic methods to climate change promises to find economically significant and directly applicable estimates of the impact of climate change that could help inform policy formation on this pressing issue. The project also promises to shed light on the costs and benefits of land-use regulation from an inter-city perspective, an issue which has received much descriptive, but little normative attention
