Measuring the Urban Quality of Life Premium

Gabriel Ahlfeldt, Fabian Bald, Duncan Roth and Tobiad Seidel
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Gabriel Ahlfeldt: HU Berlin
Fabian Bald: Viadrina University
Duncan Roth: Institute for Employment Research (IAB)
Tobiad Seidel: University of Duisburg-Essen

No 544, Rationality and Competition Discussion Paper Series from CRC TRR 190 Rationality and Competition

Abstract: We employ a quantitative spatial model that accounts for trade fritions—generated by trade costs and non-tradable services—and mobility frictions—generated by idiosyncratic tastes and local ties—to recover unobserved quality of life (QoL) and estimate the urban QoL premium. For Germany, we find that a city twice as large offers, on average, a 22% higher QoL to the average resident—far exceeding the urban wage premium of 4%. Our model-based Monte Carlo simulations suggest that the lack of strong empirical evidence for an urban QoL premium in earlier literature likely stems from measurement error in the Rosen-Roback framework due to omitted spatial frictions.

Keywords: housing; spatial frictions; rents; prices; productivity; quality of life; spatial equilibrium; wages (search for similar items in EconPapers)
JEL-codes: J2 J3 R2 R3 R5 (search for similar items in EconPapers)
Date: 2025-09-16
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