Migration and Hedonic Valuation: The Case of Air Quality

Patrick Bayer, Nathaniel Keohane () and Christopher Timmins

No 12106, NBER Working Papers from National Bureau of Economic Research, Inc

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 reflect 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 U.S. 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 pollution - excluding 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 0.34 to 0.42. These estimates imply that the median household would pay $149 to $185 (in constant 1982-1984 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 findings also confirm the importance of instrumenting for local air pollution.

JEL-codes: H5 Q2 Q5 R1 (search for similar items in EconPapers)
Date: 2006-03
New Economics Papers: this item is included in nep-dcm, nep-ene, nep-env, nep-geo, nep-pbe and nep-ure
Note: PE EEE
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Citations: View citations in EconPapers (90)

Published as Bayer, Patrick & Keohane, Nathaniel & Timmins, Christopher, 2009. "Migration and hedonic valuation: The case of air quality," Journal of Environmental Economics and Management, Elsevier, vol. 58(1), pages 1-14, July.

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Journal Article: Migration and hedonic valuation: The case of air quality (2009)
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