Working Paper: NBER ID: w24290
Authors: Paramita Sinha; Martha L. Caulkins; Maureen L. Cropper
Abstract: Amenities that vary across cities are typically valued using either a hedonic model, in which amenities are capitalized into wages and housing prices, or a discrete model of household location choice. In this paper, we use the 2000 Public Use Microdata Sample (PUMS) to value climate amenities using both methods. We compare estimates of marginal willingness to pay (MWTP), allowing preferences for climate amenities to vary by location. We find that mean MWTP for warmer winters is about twice as large using the discrete choice approach as with the hedonic approach; mean MWTP for cooler summers is approximately the same. The two approaches differ, however, in their estimates of taste sorting. The discrete choice model implies that households with the highest MWTP for warmer winters locate in cities with the mildest winters, while the hedonic model does not. Differences in estimates are due to primarily to two factors: (1) the discrete choice model incorporates the psychological costs of moving from one’s birthplace, which the hedonic models do not; (2) the discrete choice model uses information on market shares (i.e., population) in estimating parameters, which the hedonic model does not.
Keywords: urban amenities; discrete choice; hedonic models; climate amenities
JEL Codes: Q51; Q54
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| moving costs (F29) | MWTP for climate amenities (Q26) |
| psychological costs (D91) | MWTP for climate amenities (Q26) |
| discrete choice model (C25) | mean MWTP for warmer winters (D69) |
| higher MWTP for warmer winters (L97) | location in cities with milder winters (R53) |
| omission of moving costs (F29) | decrease in estimated MWTP for climate amenities (Q54) |
| discrete choice model (C25) | nuanced understanding of household sorting (D13) |