Full Citation

Title: The Macro Foundations of Macros Sorting Models

Citation Type: Miscellaneous

Publication Year: 2011

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Abstract: Sorting models to date have operated at the macro level or micro level. Regardless of the scale, all existing sorting models analyze a single choice from a single set of alternatives. Intuition suggests, however, that households choose a city and subsequently select a neighborhood within that city. This stylized reality is absent from conventional sorting models, which ignore information at one of these stages. In addition, due to the size of the full choice set, capturing this entire sorting process in a single model can be prohibitive in terms of computation and data collection. In this paper, we use the theory of two-stage budgeting to develop an empirically feasible sorting model that more accurately replicates household behavior. We first show that the typically-used structure of sorting models conforms to a two-stage budgeting assumption; we then use this result to construct a model that operates at two geographic levels. The result is a theoretically consistent model of sorting among cities that also incorporates information on households from intra-city residential location choices. Empirically, we focus on the cost of air pollution. Results point to an additional tradeoff between air pollution and neighborhood-level amenities that increases the marginal willingness to pay for clean air. We also show that allowing for heterogeneity in preferences for local public goods has a considerable impact on the estimated value of clean air.

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Authors: Hamilton, Timothy L.; Phaneuf, Daniel J.

Publisher: North Carolina State University

Data Collections: IPUMS USA

Topics: Housing and Segregation, Other

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