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Title: Migration and Hedonic Valuation: The Case of Air Quality
Citation Type: Journal Article
Publication Year: 2009
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Abstract: Conventional hedonic techniques for estimating the value of local amenities rely on the assumption that households move freely among locations. We show that when moving is costly, the variation in housing prices and wages across locations may no longer re?ect the value of differences in local amenities. We develop an alternative discrete- choice approach that models the household location decision directly, and we apply it to the case of air quality in US metro areas in 1990 and 2000. Because air pollution is likely to be correlated with unobservable local characteristics such as economic activity, we instrument for air quality using the contribution of distant sources to local pollutionexcluding emissions from local sources, which are most likely to be correlated with local conditions. Our model yields an estimated elasticity of willingness to pay with respect to air quality of 0.340.42. These estimates imply that the median household would pay $149$185 (in constant 19821984 dollars) for a one-unit reduction in average ambient concentrations of particulate matter. These estimates are three times greater than the marginal willingness to pay estimated by a conventional hedonic model using the same data. Our results are robust to a range of covariates, instrumenting strategies, and functional form assumptions. The ?ndings also con?rm the importance of instrumenting for local air pollution.
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Authors: Bayer, Patrick; Timmins, Christopher; Keohane, Nathaniel
Periodical (Full): Journal of Environmental Economics and Management
Issue: 1
Volume: 58
Pages: 1-14
Data Collections: IPUMS USA
Topics: Housing and Segregation
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