Working Paper: NBER ID: w21826
Authors: Paramita Sinha; Maureen L. Cropper; Martha Caulkins
Abstract: We value climate amenities by estimating a discrete location choice model for US households. The utility of each metropolitan statistical area (MSA) depends on location-specific amenities, earnings opportunities, housing costs, and the cost of moving to the MSA from the household head’s birthplace. We use the estimated trade-off among wages, housing costs, and climate amenities to value changes in mean winter and summer temperatures. We find that households sort among MSAs as a result of heterogeneous tastes for winter and summer temperatures. Preferences for winter and summer temperatures are negatively correlated: households that prefer milder winters, on average, prefer cooler summers, and households that prefer colder winters prefer warmer summers. Households in the Midwest region, on average, have lower marginal willingness to pay to increase winter and reduce summer temperatures than households in the Pacific and South Atlantic census divisions. We use our results to value changes in winter and summer temperatures for the period 2020 to 2050 under the B1 (climate-friendly) and A2 (more extreme) climate scenarios. On average, households are willing to pay 1 percent of income to avoid the B1 scenario and 2.4 percent of income to avoid the A2 scenario.
Keywords: Climate Amenities; Household Location; Willingness to Pay; Climate Change
JEL Codes: Q51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| households exhibit heterogeneous preferences for winter and summer temperatures (D11) | households' location decisions (R20) |
| preferences for milder winters (Q54) | preferences for cooler summers (D11) |
| preferences for colder winters (D11) | preferences for warmer summers (Q54) |
| households in the Midwest have a lower marginal willingness to pay (MWTP) to increase winter temperatures (R22) | households' location decisions (R20) |
| ignoring taste sorting (L15) | overvaluation of benefits of warmer winters in the Northeast and Midwest (J17) |
| households' willingness to pay significant amounts to avoid adverse climate scenarios (Q54) | estimated welfare measures for temperature changes (D69) |