Constructing and validating a best-fit economic well-being index for urban U.S. counties: a Tiebout model approach

Justin Ehrlich, Simon Medcalfe and Shane Sanders
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Justin Ehrlich: Syracuse University
Shane Sanders: Syracuse University

Public Choice, 2024, vol. 199, issue 1, No 4, 45-63

Abstract: Abstract This study builds on the history of economic well-being (EWB) index construction to develop such an index for urban U.S. counties (population > 62,437). Unlike previous studies, we rely on external validation of economic well-being to construct a best-fit index, where our external validation approach follows the Tiebout Hypothesis. We estimate a best-fit, linear regression-based index, in which lagged features of economic well-being are weighted based on ability to explain subsequent county population change. Compared to an arbitrarily equally-weighted model using a composite index a model using lagged weighted EWB individual variables provide greater transparency while also explaining substantially more variation in population change across urban counties (19.9% vs. 15.7%).

Keywords: Tiebout hypothesis; Economic well-being; Composite indicators; Index validation; Tiebout sorting (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s11127-023-01055-y

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