a theoretical and empirical analysis of family migration and household production reply of her household production as factors in the family s migration decisions 38 in this paper the research on family migration will be extended in three ways a formal model of household production and family migration will be developed and used to generate testable hypotheses about family migration variables which otherwise would not have a clear economic interpretation are incorporated into the model the model will then be estimated and some policy implications will be discussed one policy implication concerns the efficiency of the labor market labor market efficiency needs to be judged not only in terms of the efficiency of the job search of single individuals but also in terms of the efficiency of the joint job search of double income families this paper is organized into five sections first a comparative static household production model of locational choice is developed 2 next this model of locational choice is used to develop a theoretical model of family migration third the data and empirical model are discussed fourth the empirical results are reported and interpreted in terms of three different types of migration estimates of the impact of selected variables on the distance of the move are also considered the final section summarizes the general findings and offers some policy implications

attracting attention cheap managerial talk and costly market monitoring we provide a theory of informal communication cheap talk between firms and capital markets that incorporates the role of agency conflicts between managers and shareholders the analysis suggests that a policy of discretionary disclosure that encourages managers to attract the market s attention when the firm is substantially undervalued can create shareholder value the theory also relates the credibility of managerial announcements to the use of stock based compensation the presence of informed trading and the liquidity of the stock our results are consistent with the existence of positive announcement effects produced by apparently innocuous corporate events e g stock dividends name changes recent regulations such as the sarbanes oxley act stress the importance of providing timely and accurate information to investors in practice firm information can be concealed and is often difficult to substantiate moreover there is likely to be fundamental disagreement between managers and shareholders with respect to the firm s disclosure policy managers can be reluctant to disclose information because for example it may reflect prior poor managerial decisions and hence question their performance inducing managers to disclose information is therefore an essential component of managerial incentives as a result a firm s disclosure and compensation policies are intrinsically related aspects of corporate governance that cannot be considered in isolation this paper develops a theory of information disclosure that incorporates the following two elements first managers who become informed through the course of everyday operations are unwilling to disclose their private information when it reflects poorly on them in this sense the theory explores the trade offs that agency conflicts between managers and shareholders create on information disclosure second apparently innocuous corporate actions such as andres almazan is with the university of texas at austin sanjay banerji is with the university

models for referendum data the structure of discrete choice models for contingent valuation abstract in 1979 bishop and heberlein introduced an appealing variant of the contingent valuation method which required only yes or no responses hanemann developed a utility theoretic interpretation of the yes no responses which has helped popularize the approach recently cameron has offered another interpretation also utility theoretic which she argues is more general than the hanemann random utility model this paper compares the deterministic models suggested by hanemann and cameron showing them to be dual to each other it shows that correct specification of either function must exclude endogenous variables such as quantity demanded it also demonstrates that using utility theoretic models allows one to compare travel cost models and contigent valuation models on the basis of their implied behavior not on the unobservable surplus or variation measure

la dolce vita hedonic estimates of quality of life in italian cities colombo e michelangeli a and stanca l la dolce vita hedonic estimates of quality of life in italian cities regional studies this paper investigates quality of life in italian cities using the hedonic approach it analyses micro level data for housing and labour markets to estimate compensating differentials for local amenities within four domains weather environment services and society large compensating differentials in housing markets are found whereas the effects on wages are relatively small quality of life varies substantially across space and is generally better in large and medium sized cities of the centre north services and social conditions are strongly related to overall quality of life it is also found that across cities quality of life is positively and significantly related to subjective well being

distinctively different a new approach to valuing architectural amenities we propose a method to estimate the capitalized value of the architectural design quality of a neighbourhood our economic design premium is identified by spatially differentiating property prices and design quality within neighbourhoods and comparing the differences across neighbourhoods we apply our method to 47 conservation area neighbourhoods in england in which we analyse around 7900 property transactions and interview more than 500 residents we find a capitalization effect of about 25 4 38 7k associated with a one step increase on a five step scale ranging from not at all distinctive to very distinctive our results suggest that this effect is at least partially driven by an architectural externality

income redistribution in a common labor market when households are mobile among jurisdictions income redistribution by individual jurisdictions creates fiscal externalities a model of interjurisdictional migration is used to study the nature of this redistributive externality analysis of optimal redistribution and optimal corrective subsidies from higher level governments shows that benefit levels for the recipients of income transfers and tax rates on mobile taxpayers should be equalized across jurisdictions a system of jurisdictions with a common labor market can achieve welfare improvements through coordination of domestic redistributive policy or through the intervention of a higher level government copyright 1991 by american economic association

the impact of climate change on internal migration in brazil abstract business as usual climate change forecasts point to sharp temperature rises and agriculture yield losses in many regions of brazil we study the impact of these changes on internal migration and population distribution we employ a spatial equilibrium model in which the climate shapes workers locational choices through the usual amenity value channel and the novel indirect channel via agriculture wages our simulations reveal that migration rates are 9 65 higher and that 0 9 million more people migrate inter regionally under future climate conditions furthermore climate change will likely exacerbate the country s regional inequalities as the most developed regions gain population and welfare while the least developed regions lose

the distributional impact of public services when needs differ this is the accepted version of a work that was accepted for publication in journal of public economics changes resulting from the publishing process such as peer review editing corrections structural formatting and other quality control mechanisms may not be reflected in this document changes may have been made to this work since it was submitted for publication a definitive version was subsequently published in journal of public economics 94 9 10 549 562 october 2010

local pay determination theoretical models of local pay are reviewed ranging from neoclassical perspectives unemployment wage trade off models and segmented labor market approaches the empirical work on u s north south differentials is discussed for the u k studies of the extent of and trends in geographical pay differentials are considered as well as behavioral explanations focusing on the role of excess demand the issue of adjustment processes is then discussed both in theory and in relation to empirical work for the u s and u k this discussion focuses largely on geographical spillover effects in terms of origins evidence and issues of identification finally the impact of certain impediments in the adjustment process are considered specifically in relation to the u k these concern the role and influence of national wage bargaining as well as factors inhibiting labor migration stemming from the housing market and the climate of the national labor market copyright 1992 by blackwell publishers ltd

dynamic conversion behavior at e commerce sites this paper develops a model of conversion behavior i e converting store visits into purchases that predicts each customer s probability of purchasing based on an observed history of visits and purchases we offer an individual level probability model that allows for different forms of customer heterogeneity in a very flexible manner specifically we decompose an individual s conversion behavior into two components one for accumulating visit effects and another for purchasing threshold effects each component is allowed to vary across households as well as over time visit effects capture the notion that store visits can play different roles in the purchasing process for example some visits are motivated by planned purchases while others are associated with hedonic browsing akin to window shopping our model is able to accommodate these and several other types of visit purchase relationships in a logical parsimonious manner thepurchasing threshold captures the psychological resistance to online purchasing that may grow or shrink as a customer gains more experience with the purchasing process at a given website we test different versions of the model that vary in the complexity of these two key components and also compare our general framework with popular alternatives such as logistic regression we find that the proposed model offers excellent statistical properties including its performance in a holdout validation sample and also provides useful managerial diagnostics about the patterns underlying online buyer behavior

a probabilistic choice model for market segmentation and elasticity structure marketing scholars commonly characterize market structure by studying the patterns of substitution implied by brand switching though the approach is useful it typically ignores the destabilizing

equity in the city on measuring urban ine quality of life in economic literature the quality of life qol in a city is usually assessed through the standard revealed preference approach which defines a qol index as the monetary value of urban amenities this paper proposes an innovative methodology to measure urban qol when equity concerns arise the standard approach is extended by introducing preferences for even accessibility to amenities throughout the city into the qol assessment the qol index is then reformulated to account for the unequal availability of amenities across neighbourhoods the more unbalanced the distribution of amenities across neighbourhoods the lower the assessment based on the new index this methodology is applied to derive a qol index for the city of milan the results show that the unequal distribution of amenities across neighbourhoods significantly affects the assessment of qol for that city

long term consequences of short term precipitation shocks evidence from brazilian migrant households we find that large short term precipitation shocks damage the long term income of households that have permanently migrated from rural to urban areas this outcome is consistent with the behavior of credit constrained rural households who are willing to accept lower long term income in urban areas following the depletion of their productive assets during an adverse shock our empirical evidence suggests that there may be a link between large precipitation shocks in rural areas and urban poverty further exploration is warranted on the mechanisms by which natural disasters cause these long term losses

a productivity model of city crowdedness abstract population density varies widely across us cities a simple static general equilibrium model suggests that moderate sized differences in cities total factor productivity can account for such variation nevertheless the productivity required to sustain above average population densities considerably exceeds estimates of the increase in productivity caused by such high density in contrast increasing returns to scale may be able to sustain multiple equilibria at below average population densities

quality of life firm productivity and the value of amenities across canadian cities we estimate quality of life and productivity differences across canada s metropolitan areas in a hedonic general equilibrium framework these are based on the estimated willingness to pay of heterogeneous households and firms to locate in various cities which differ in their wage levels housing costs and land values using 2006 canadian census data our metropolitan quality of life estimates are somewhat consistent with popular rankings yet find canadians care more about climate and culture quality of life is highest in victoria for anglophones montreal for francophones and vancouver for allophones and lowest in more remote cities toronto is canada s most productive city vancouver is the overall most valuable city qualite de vie productivite des entreprises et la valeur des avantages dans les diverses villes canadiennes on evalue les differences entre la qualite de vie et la productivite des entreprises entre les zones metropolitaines au canada a l aide d un cadre d analyse d equilibre general hedonique ces metriques sont basees sur l estimation de la volonte de payer de menages et d entreprises heterogenes pour se localiser dans diverses villes qui different tant pour ce qui est des niveaux de salaires des couts de l habitation et des prix des terrains a l aide des donnees du recensement canadien de 2006 on construit des evaluations de la qualite de vie des diverses zones metropolitaines qui s arriment convenablement aux ordonnancements en vogue mais on decouvre que les canadiens portent une attention particuliere au climat et a la culture la qualite de vie est la plus elevee a victoria pour les anglophones a montreal pour les francophones et a vancouver pour les allophones et la plus faible pour les villes eloignees des grands centres toronto est la ville la plus productive vancouver est generalement la plus appreciee

the rising price of nonmarket goods nonmarket goods such as unpaid household labor leisure health and longevity and the environment are important components of the standard of living they represent a large fraction of all activities prime aged men and women spend 17 percent of their day in leisure activities and 5 and 13 percent of their time respectively in unpaid housework compared to 23 and 13 percent of their time respectively in paid work the quantity of nonmarket goods is rising over time in the united states life expectancy at birth is now 77 years having risen by 29 years since 1900 in los angeles county between 1980 and 1998 average annual daily exceedences of the national smog standard declined by 60 days from 71 to 11 falling big city murder rates merit national news headlines studies of living standards have focused on the tremendous change in the quantity of nonmarket goods but have assumed that the value of nonmarket goods except for unpaid labor has remained constant this assumption underlies most health studies e g david cutler and elizabeth richardson 1997 kevin m murphy and robert h topel 2003 william t nordhaus 2003 nordhaus 2003 valued declines in mortality since 1900 using a constant value of life even the boskin cpi commission michael j boskin et al 1998 discussed trends in the quantity of nonmarket goods i e pollution and crime progress without mentioning incorporating such goods implicit prices into a broader cpi measure there is no reason to think that implicit prices or the willingness to pay for nonmarket goods has remained constant rising real and shadow wages have made both leisure and unpaid household labor more expensive rising incomes have also made such normal goods as safety health a temperate climate and the environment more valuable we document the price dynamics of nonmarket goods by estimating repeat cross sectional hedonic regressions we focus on two important and measurable nonmarket goods job fatality risk and climate in both cases we find that both price and quantity have been rising this evidence is consistent with rising valuation we use our estimates of job risk compensating differentials to construct new evidence on long run trends in value of life accounting for price changes affects how we view the retrospective and prospective benefits of medical innovations a rising value of life implies that marginal improvements in safety and in longevity are becoming more valuable we report evidence that the price of living in a temperate winter and summer climate has significantly increased over time

what are cities worth land rents local productivity and the total value of amenities abstract this paper models how to use widely available data on wages and housing costs to infer land rents local productivity and the total value of local amenities in the presence of federal taxes and locally produced nontraded goods i apply the model to u s metropolitan areas with the aid of visually intuitive graphs the results improve measures of productivity and feature large differences in land rents wage and housing cost differences across metropolitan areas are accounted for more by productivity than quality of life differences regressions using individual amenities reveal that the most productive and valuable cities are typically coastal sunny mild educated and large

why do households without children support local public schools linking house price capitalization to school spending while residents receive similar benefits from many local government programs only about one third of all households have children in public schools we argue that capitalization of school spending into house prices can encourage even childless residents to support spending on schools we identify a proxy for the extent of capitalization the supply of land available for new development and show that towns in massachusetts with little undeveloped land have larger changes in house prices in response to a plausibly exogenous spending shock towns with little available land also spend more on schools we extend these results using data from school districts in 46 states showing that per pupil spending is positively related to the percentage of developed land this positive correlation persists only in districts where the median resident is a homeowner and is stronger in districts with more elderly residents who do not use school services and have a shorter expected duration in their home our findings support models in which capitalization encourages the provision of durable local public goods and provides an additional reason why some elderly support local school spending

a forward looking ricardian approach do land markets capitalize climate change forecasts abstract the hedonic pricing method is one of the main approaches used to estimate the economic value of attributes that affect the market price of an asset this method is routinely used in environmental economics to derive the economic valuation of environmental attributes such as air pollution and water quality for example the ricardian approach is based on a hedonic regression of land values on historical climate variables forecasts of future climate can then be employed to estimate the future costs of climate change we show that this approach is only valid if current land markets ignore climate forecasts while this assumption was defensible decades ago when this literature first emerged it is reasonable to hypothesize that information on climate change is so pervasive today that markets may already price in expectations of future climate change indeed we show empirically that agricultural land markets in the united states now capitalize expectations about future climate change we derive a straightforward empirical correction to the standard ricardian approach called the forward looking ricardian approach that can be implemented with readily available data accounting for market beliefs decreases the estimated magnitude of climate change damages by 50 62

digital piracy a competitive analysis in recent years the issue of copyright protection for intellectual properties such as computer software music cds and videos has become increasingly important it is often claimed that illegal copying of intellectual property costs companies billions of dollars in lost revenues and reduces firms incentives to innovate some researchers have shown that copying can be beneficial to firms when there are strong network effects and copying expands the market in this paper we first examine the impact of illegal copying of software and other similar intellectual properties on firms prices profits and quality choices even when there are no network effects and the market is saturated we show that contrary to the claims of manufacturers there are conditions under which copying can increase firms profits lead to better quality products and increase social welfare this is because weaker copyright protection enables firms to reduce price competition by allowing price sensitive consumers to copy thus weaker copyright protection can serve as a coordination device to reduce price competition we also examine how equilibrium copyright enforcement is affected by network externalities in contrast to previous research we show that strong network effects can sometimes lead to a firm choosing higher levels of copyright protection our results show that in the presence of strong network effects stronger copyright enforcement by one firm can serve as a coordinating device to reduce price competition

compensating differentials in emerging labor and housing markets estimates of quality of life in russian cities abstract the purpose of this paper is to see if an equilibrium model of compensating differences for amenities can be applied to a major transition economy russia we analyze russian labor and housing markets using data from the russian longitudinal monitoring survey rlms augmented by city and regional specific characteristics from other sources our estimated wage and housing value equations suggest that workers are compensated for differences in climate environmental conditions ethnic conflicts crime rates and health conditions after controlling for worker characteristics occupation industry and economic conditions and various housing characteristics we find evidence that these compensating differentials exist even after controlling for the regional pay differences regional coefficients used by the russian government to compensate public sector workers for living in regions that are designated as less desirable quality of life as measured by a group of eleven amenities varies substantially the highest ranked cities tend to be in relatively warm areas and areas in the western european part of the country our quality of life index is positively correlated with net migration into a region suggesting workers are attracted to amenity rich locations overall we find that a model of compensating differentials with controls for disequilibrium yields useful information about compensation for location specific amenities and quality of life in this large transition economy

measuring the social value of local public goods an empirical analysis within paris metropolitan area a non linear hedonic model is used to estimate the implicit marginal prices of 17 local public goods in a paris suburban area on an original data set of some 8200 housing units the results reveal a robust effect of local public school quality measured both by the fraction of junior high school students that are at least two years behind grade level and the student teacher ratio on house prices it is observed that housing owners marginal willingness to pay for reducing commuting time is roughly similar for public transportation than for car transportation another noticeable result is the complete capitalization of local taxes at a discount rate of 3 5 an illustration of the potential usefulness of the results for cost benefit analysis is also provided

amenities and the attraction of dutch cities abstractamenities and the attraction of dutch cities regional studies research on the relevance of amenities for urban wages jobs or housing prices has mainly focused on the case of us cities in many european countries the labour and housing markets function however rather differently than in the case of the united states as a result amenities may affect urban labour or housing markets differently in addition in european countries the proximity of cities is such that spatial interdependencies between cities have to be taken into account as well by using a very rich dataset this paper analyses the relationship between urban amenities agglomeration and housing prices for the case of a highly urbanized european country the netherlands it finds that dutch cities that combine a favourable job location with a variety of urban amenities have significantly higher housing prices relatively safe cities offering a variety of history and cultural events as well as good restaurants also have sign

the role of site and job characteristics in hedonic wage models recent economic analyses of wage rate differentials have generally used some form of hedonic framework in explaining the observed wage structure while these studies have adopted this common theoretical justification the models have been used to serve two distinct objectives the first of these is an empirical test of the theory of equalizing differences originally introduced by adam smith in such applications see brown 7 lucas 26 olson 28 thaler and rosen 36 and viscusi 40 as examples specific job characteristics measured with technical information or with worker perceptions have been used to explain differences in wage rates across individuals and jobs while there are a number of these studies there has not been a consistent pattern of support for the theory indeed with the exception of job risks many characteristics that a priori would be expected to lead to equalizing differences have often exhibited incorrect and or statistically insignificant measured effects on wages the second use for wage models has been as the basis for an index of the quality of life in urban areas in this framework households are assumed to select residential locations so as to maximize their individual welfare migration between cities provides the mechanism for an equilibrium household assignment under ideal conditions the pattern of equilibrium wage rates reflects the attributes of the cities involved see hoch 20 izraeli 23 cropper lo cropper and arriaga salinas 111 and rosen 31 as examples the purpose of this paper is to develop a model for wage rate differentials that includes both job and site characteristics and to estimate the model with a large micro data set our wage models provide estimates of a market clearing envelope which includes each of two types of past analyses as a

compensating differentials and the social benefits of the nfl abstract we use hedonic rent and wage equations to measure compensating differentials in central cities and metropolitan areas with franchises of the national football league rents are about 8 percent higher in the central cities but this impact may not carry over to broader geographical areas wages are about 2 percent lower in areas with teams but the standard error on this parameter is large the central city results indicate that sports franchises appear to be a public good once these quality of life benefits are included in the calculus the large public expenditure on new stadiums appears to be a good investment for cities and their residents

the effects of housing prices wages and commuting time on joint residential and job location choices an empiricalmodelof joint decisions of where to l and where to work demonstrates that individuals make residential and job location choices by trading off wages housing prices and commuting costs wages are higher in metropolitan markets but housing prices are also higher in urban areas consumers can live in lower priced nonmetropolitan houses and still earn urban wages but they incur commuting costs that increase with distance from the city improvements in transportation that lower commuting time will increase nonmetropolitan populations and will increase the number of nonmetropolitan commuters to metropolitan markets equal wage growth across labor markets causes a shift in relative population from rural to urban markets while an equiproportional increase in housing prices causes a population shift toward rural areas

separating urban agglomeration economies in consumption and production abstract in this paper we estimate the net agglomeration economies on the consumption side as well as the production side using japanese city based data from 1992 when interregional net migration nearly ceased we show that doubling city size increases the nominal wage by approximately 10 but decreases the real wage by approximately 7 12 the 10 increase of the nominal wage is attributed to the productivity increase in production activities while the 7 12 decrease of the real wage is a compensation for the net agglomeration economies which are the benefits from product variety minus the costs of congestion in other words city bigness not only enhances the productivity of firms but also brings net agglomeration economies to households in this way we separate the net agglomeration economies on the production side from those on the consumption side

parking transit and employment in a central business district abstract in this paper we present a general equilibrium model to examine the role of parking and transit subsidy policy on the size of a central business district cbd cbd land values and the market shares of cars and transit the three main features of the model are 1 agglomeration economies increase continuously with labor market size 2 congestion arises from auto use only transit is noncongestible and 3 locational equilibrium is maintained in the sense that firms and individuals cannot reduce costs or increase utility by moving given equilibrium prices and city size we derive the conditions under which parking taxes can be levied and used to subsidize transit and increase equilibrium cbd size and land values we compute an optimal parking tax that maximizes cbd size and land values and derive relationships among parking taxes transit use and congestion we find nonmonotonic relationships among parking taxes land values and transit use

demand for environmental goods evidence from voting patterns on california initiatives this article studies voting behavior on 16 environmental ballot propositions in california in order to characterize the demand for environmental goods the environment is found to be a normal good for people with mean incomes but some environmental goods are inferior for those with high incomes at least when supplied collectively an important price of environmental goods is reduced income in the construction farming forestry and manufacturing industries income and price can explain most of the variation in voting there is little need to introduce preference variables such as political ideology

a consumption based theory of the environmental kuznets curve abstract most theories about the inverted u relationship between pollution and income termed the environmental kuznets curve ekc are production side theories emphasizing pollution and abatement technologies production side theories are implicitly based on the assumption of low factor mobility and the absence of pollution as a variable in the utility function both assumptions are called into question by the empirical evidence of ekcs for i pollutants that are long lived and not easily shiftable and ii regional cross sections with free labor mobility hazardous waste sites are a prime example this paper develops a stylized model of the ekc based on perfect mobility of households and labor it represents the first attempt at developing a consumption side model of the ekc

union membership in the united states 1973 1981 this paper reports estimates of union membership gathered from may current population surveys from 1973 to 1981 the authors present data by occupation industry selected states and smsas race gender and educational attainment the paper both extends and differs from that by freeman and medoff which presents unionism estimates for the private sector for 1968 75 to facilitate longitudinal analysis this paper reports three year moving averages of occupational and industry data and annual estimates of demographic classifications the data include public sector as well as private sector workers and they exclude workers not covered by the national labor relations act also the authors provide only union membership estimates not estimates on workers covered by union contracts this paper suggests that the percentage of all workers that are unionized in the united states remained fairly constant over the 1973 81 period

deriving benefit measures with higher precision a study of economic values of air quality a calibration strategy using ridge regression to generate more precise estimates for a particular parameter in a model is proposed formulae to compute the proposed ridge estimates from standard ordinary least squares ols results are provided the strategy is applied to recomputing marginal effects of air pollution on property values for 30 housing studies results show that ridge estimates are superior to the ols estimates under the mean squared error criterion the same strategy can be used to reestimate key parameters of interest in other applications such as price elasticities for demand forecasts or the value of a statistical life from hedonic wage regressions

is there a compensating wage differential for high crime levels first evidence from europe abstract this paper investigates whether high regional crime levels lead to a compensating wage differential paid by firms in the respective region using data from german social security records official police statistics and official statistics for 2003 2006 i consider both violent and non violent crimes and use three way error components estimators to control for individual and regional heterogeneity the findings suggest that wages are practically unrelated to changes in crime rates this result is robust over a wide range of subgroups there is however some evidence that crime rates influence land prices

a probabilistic approach to pricing a bundle of products or services the authors propose a probabilistic approach to optimally price a bundle of products or services that maximizes seller s profits their focus is on situations in which consumer decision making is o

old homes externalities and poor neighborhoods a model of urban decline and renewal abstract this paper investigates urban decline and renewal in the united states using three panels that follow neighborhoods on a geographically consistent basis over extended periods of time findings indicate that change in neighborhood economic status is common averaging roughly 13 percent per decade roughly two thirds of neighborhoods studied in 1950 were of quite different economic status fifty years later panel unit root tests for 35 msas indicate that neighborhood economic status is a stationary process consistent with long running cycles of decline and renewal in philadelphia county a complete cycle appears to last up to 100 years aging housing stocks and redevelopment contribute to these patterns as do local externalities associated with social interactions lower income neighborhoods appear to be especially sensitive to the presence of individuals that provide social capital many of the factors that drive change at the local level have large and policy relevant effects

the impact of site characteristics on housing cost estimates abstract hedonic housing regressions using micro data for owners and renters from the 1972 1973 consumer expenditure survey are presented by including tract characteristics and public goods in these regressions evidence is presented which indicates sensitivity of the physical housing variable coefficients to the choice of included site related characteristics furthermore omission of public good variables can result in misleading and possibly perverse coefficients on access intermetropolitan housing cost estimates however are shown to be relatively insensitive to the choice of site related characteristics

optimal managerial contracts and equilibrium security prices recent developments in economic theory have focused attention on efficient methods for providing incentives within a corporation especially to top management jensen meckling 12 have examined some implications of incentive or agency problems for corporate finance in this paper we combine a simple model of security market equilibrium with that of an optimal managerial incentive contract using results of harris raviv 8 and holmstrom 9 we provide a rationale for including security prices in the managerial incentive contracts of publicly held firms in this model we also show that non systematic diversifiable risks will be considered in the capital budgeting decisions of a managerial firm operated in the interests of its stockholders this is in contrast to the implication of the arbitrage pricing theory a similar result follows from the capital asset pricing model which abstracts from incentive problems and suggests that only systematic risks ought to be considered the optimal contract model of the corporation takes the following view of the firm since decision makers within a firm are not sole owners of the business but employed agents the decisions which they make depend on the incentives which the organization provides these incentives are embodied explicitly in employment contracts and implicitly through the threat of dismissal or effect on reputation the contract whether explicit or not describes the decision maker s anticipation of the consequences to him conditional on various observable outcomes these outcomes are used to provide information useful in determining whether he did his job properly in the simplest optimal contract scenario there is a single principal and a single agent whose decision concerns the level of effort he expends the level of effort affects the level of output of the firm but not unambiguously because the output is also governed by other stochastic elements as a result some information about the agent s level of effort can be inferred

optimal land development with endogenous environmental amenities a spatially explicit model of the optimal timing and location of land development is presented that incorporates dynamic interactions between land development and water quality ignoring two way interactions leads to a lower level of water quality more development and lower social welfare the optimal pace and pattern of development can be achieved through the assessment of an impact fee that internalizes pollution damages and irreversibility costs our results demonstrate the importance of accounting for the spatial dimension of land use the interdependence between land use and environmental quality and development irreversibility in models of urbanization and amenity driven growth copyright 2008 oxford university press

an integrated model of regional and local residential sorting with application to air quality we examine the interconnectedness of demand for regionally and locally varying public goods using a residential sorting model we propose a version of the model that describes household choices at the city msa level and conditional on city the neighborhood census tract level we use a two stage budgeting argument to develop an empirically feasible sorting model that allows us to estimate preferences for regionally varying air quality while accounting for sorting at the local level our conceptual and empirical approach nests previous sorting models as special cases allowing us to assess the importance of accounting for multiple spatial scales in our predictions for the cost of air pollution furthermore our preferred specification connects the city and neighborhood sorting margins to the upper and lower elements of a nested logit model thereby establishing a useful correspondence between two stage budgeting and nested logit estimation empirically we find that estimates from a conventional model of sorting across msas imply a smaller marginal willingness to pay for air quality than estimates from our proposed model we discuss how the difference is attributable in part to the omitted variable problems arising when tract level sorting is ignored

new estimates of climate demand evidence from location choice abstract we develop and apply to census data a new method for estimating climate demand the method is useful for ranking quality of life based upon a willingness to pay criterion our two major findings are that the willingness to pay quality of life index is correlated with the hedonic approach s ranking but that the migration approach generates much larger estimates of willingness to pay for a more moderate climate this finding is relevant for evaluating the economic impact of global warming

voting with your feet and the quality of life index abstract this paper develops a new technique that uses the utility maximizing migration decisions of rational voters consumers to construct qol rankings we apply our technique to canadian inter provincial migration data for 1970 1990

hedonic price functions and the measurement of preferences the case of swedish wine consumers abstract a hedonic price function for wine is estimated using swedish data 1989 1991 implicit prices for quality attributes are determined not from a regression of variety price on a vector of quality attributes but rather from a regression of quantity sold adjusted for weeks of availability on price and quality attributes such a reduced form is justified by the assumption that prices and attribute contents can be taken as exogenous to the swedish consumer price elasticity is estimated to be about 1 65 holding quality constant showing that swedish consumers are highly sensitive to price estimates of the implicit valuations of quality attributes are shown to differ greatly from those obtained from the more usual hedonic regression with price as the dependent variable

a reservation price model for optimal pricing of multiattribute products in conjoint analysis a significant application of conjoint analysis is in pricing decisions for new products conceptually profit maximization is an important criterion for selecting the price of a product however t

cheap talk and burned money we augment the standard crawford sobel 1982 econometrica 50 1431 1451 model of cheap talk communication by allowing the informed party to use both costless and costly messages the issues on which we focus are the consequences for cheap talk signaling of the option to burn money and the circumstances under which both cheap talk and burned money are used to signal information

new estimates of quality of life in urban areas implicit markets capture compensation for intraurban and interregional differe nces in amenities and yield differences in housing prices and wages these pecuniary differences become preference based weights in a qual ity of life index hedonic equations are estimated using microdata fr om the 1980 census and assembled county based amenity data on climati c environmental and urban conditions ranking of 253 urban counties reveals substantial variation within as well as among the 185 urba n areas the quality of life differences across counties within one s msa is almost one half of the difference between the top and bottom ranked counties in the nation copyright 1988 by american economic association

optimal bundling and pricing under a monopoly contrasting complements and substitutes from independently valued products we develop an analytical model of contingent valuations and address two questions of import to a monopolist i should a given pair of complements or substitutes be sold separately pure components together pure bundling or both mixed bundling and at what prices ii how do optimal bundling and pricing strategies for complements and substitutes differ from those for independently valued products we find that the combination of marginal cost levels and the degree of complementarity or substitutability determines which of the three bundling strategies is optimal complements and substitutes should typically be priced higher than independently valued products

wages rents and the quality of life this study focuses on the role of wages and rents in allocating workers to locations with various quantities of amenities the theory demonstrates that if the amenity is also productive then the sign of the wage gradient is unclear while the rent gradient is positive the theory is extended to include the housing market and nontraded goods these extensions require little modification of the conclusion the empirical work on wages shows that the regional wage differences can be explained largely by these local attributes with the use of site price data implicit prices are estimated and quality of life rankings for the cities are computed

gaussian demand and commodity bundling in an important and widely cited essay adams and yellen 1976 examine the use of package selling as a price discrimination device they consider a monopolist producing two goods with constant unit costs and facing buyers with diverse tastes the marginal utility of a second unit of either good is assumed to be zero for all buyers the two goods are independent in demand for all buyers so that any buyer s reservation price for the first unit of either good is independent of the market price of the other thus the maximum amount any buyer would pay for a bundle consisting of one unit of each good is the sum of the two reservation prices and buyers are completely described by the values of those two prices 2 resale markets are assumed away in order to obtain comparative results for alternative pricing strategies the distribution of reservation prices in the adams yellen framework is assumed to be bivariate normal implications of gaussian demand are explored pure bundling is shown to operate by reducing buyer diversity thus facilitating the capture of consumers surplus it generally makes buyers worse off than unbundled sales it is more profitable if average reservation prices are high enough mixed bundling combines advantages of both pure bundling and unbundled sales and it is generally strictly more profitable than either bundling which treats goods symmetrically seems most attractive under symmetric reservation price distributions i am indebted to severin borenstein for superb research assistance to the ford motor company for research support through a grant to m i t and to the harvard economics department for housing me as a visiting scholar while most of this research was performed of course only i can be held responsible for this essay s shortcomings 1 the first clear recognition of this possibility seems to have been by stigler 1968 but also see burstein 1960 2 paroush and peles 1981 relax the assumption that consumers purchase at most one unit of each good but they consider only two types of buyers both with linear demand functions they retain the assumption that demands are independent for all buyers telser 1979 and phillips 1981 use different frameworks to analyze bundling policies spence 1980 explores the relation between bundling across commodities as here and bundling multiple units of the same

heuristics for pricing and positioning a product line using conjoint and cost data designing and pricing a product line is the very essence of every business in recent years quantitative methods to assist managers in this task have been gaining in popularity conjoint analysis is already widely used to measure preferences for different product profiles and build market simulation models in the last few years several papers have been published that suggest how to optimally choose a product line based on such data we formalize this problem as a mathematical program where the objective of the firm is either profit or total welfare unlike alternative published approaches we introduce fixed and variable costs for each product profile the number of products to be introduced is endogenously determined on the basis of their desirability fixed and variable costs and in the case of profits their cannibalization effect on other products while the problem is difficult np complete we show that the maximum welfare problem is equivalent to the uncapacitated plant location problem which can be solved very efficiently using the greedy interchange heuristic based on past published experience with this problem and on simulations we perform we show that optimal or near optimal solutions are obtained in seconds for large problems we develop a new greedy heuristic for the profit problem and its application to simulated problems shows that it too runs quickly and with better performance than various alternatives and previously published heuristics we also show how the methodology can be applied taking existing products of both the firm and the competition into account

understanding gentrification an empirical analysis of the determinants of urban housing renovation abstract the back to the city phenomenon presented an unpredicted countercurrent in the prevalent tide of suburbanization and this process of upper income resettlement in the inner city has been thoroughly analyzed in the urban economic literature housing renovation a process that always accompanies gentrification and constitutes a significant portion of residential housing investment has been studied much less contrary to the expectation that location matters the existing empirical studies have concluded that most neighborhood amenities and structural attributes are insignificant as determinants of renovation using a detailed parcel level data set that documents all residential renovation activity in chicago between 1995 and 2000 this paper establishes that the characteristics of a building and its neighborhood do indeed influence the likelihood that it will be renovated

do inter city differences in intra city wage differentials have any interesting implications abstract recent research has related characteristics of cities to differences in the distribution of wages across workers with different skill levels we demonstrate that these differences in wage differentials arise naturally as a compensating variation in rosen s theoretical model of inter city wages for example if the income elasticity of demand for housing services is less than unity cities with higher house prices will have smaller money wage differentials between low and high skill workers this result has no implications for differences in either absolute or relative real productivity or welfare of unskilled workers similarly changes in the amenity of an urban area may result in changes in relative wages of skilled and unskilled workers with no implications for real productivity or welfare differentials empirical tests in which housing cost differentials are added as a determinant of inter city differences in an intra urban wage differential model provide empirical confirmation of the theoretical expectations it appears that intra urban money wage differentials differences in the quality of life and variation in the cost of living in each city are jointly determined variables just as rosen s model of inter city wage differentials predicts

estimating the net implicit price of energy efficient building codes on u s households abstract requiring energy efficiency building codes raises housing prices or the monthly rental equivalent but theoretically this effect might be fully offset by reductions in household energy expenditures whether there is a full compensating differential or how much households are paying implicitly is an empirical question this study estimates the net implicit price of energy efficient buildings codes iecc 2003 through iecc 2006 for american households using sample data from the american community survey 2007 a heteroskedastic seemingly unrelated estimation approach is used to estimate hedonic price house rent and energy expenditure models the value of energy efficiency building codes is capitalized into housing rents which are estimated to increase by 23 25 percent with the codes however the codes provide households a compensating differential of about a 6 47 percent reduction about 7 71 in monthly energy expenditure results indicate that the mean household net implicit price for these codes is about 140 87 per month in 2006 dollars 163 19 in 2013 dollars however this estimated price is shown to vary significantly by region energy type and the rent gradient

optimal designs for discrete choice contingent valuation surveys single bound double bound and bivariate models this paper finds the designs for discrete choice contingent valuation surveys which maximize the precision of a statistic of interest about the public s willingness to pay wtp for a change in the environmental quality such as median wtp an optimization problem is set up in which the efficiency of the estimate of median wtp or a related concept is the objective function to optimize with respect to the survey design i e the set of bids offered to the respondents in deriving the optimal designs we consider alternative econometric models such as the basic single bound model that uses the responses to the first payment question the traditional interval data or double bound model for surveys with a follow up payment question and the recently proposed bivariate binary response model simulations are carried out to compare the alternative design principles and assess their performances with respect to the statistic of primary interest median wtp and other welfare measures such as mean wtp other designs that are constructed ad hoc are also examined

a reexamination of the federal private wage differential in the united states the federal private wage differential is reexamined with recent data using specifications similar to those used in three previous studies i find that the federal private wage differential has narrowed since the 1974 79 period analyzed in those studies in addition i discover that wage differentials based on specifications used in the literature are biased upward because the previous studies did not control for detailed occupational and locational characteristics of workers corrected point estimates of the wage gap are much smaller than previous estimates in the literature differences in the gap across demographic groups occupations and locations are also discussed

quality of life and spatial dimensions of the productivity slowdown this research is concerned with explaning locational variations in the productivity slowdown within the urban manufacturing sector of the united states the observed decline in labour productivity growth rates between the 1963 73 and 1973 82 subperiods is explained on the basis of both national and location specific factors an explict hypothesis examined here is that quality of life is an important area specifc influence on productivity growth and related trends statistical analyses are conducted whereby either an aggregate amenity index or its individual amenity components are utilized to examine the importance of quality of life differentials the results suggest that these amenities particularly environmental quality may be instrumental in explanining the differncial magnitude of the productivity slowdown across urban areas additional findings generally do not confirm the importance of other factors frequently cited as contributing to inter area productivity differences a regression diagnostic an

clusters of attributes and well being in the usa using arima models and entropy the dynamic evolution of several functions of aggregate income and other attributes of well being is analysed for statistical similarity in order to determine potentially distinct dimensions in multidimensional analysis of welfare and quality of life in the usa the entropy metric compares entire distributions and is more general than principal components and other correlation based techniques for clustering to help macroeconomic policy makers we compare the distribution of several composite measures of well being which include income with the distribution of some common measures of aggregate income over the period 1915 1995 per capita disposable income and growth in gnp are statistically distinct dimensions of well being copyright 2001 john wiley sons ltd

housing quality differentials in urban areas abstract this paper applies an equilibrium quality theory for differentiated products to estimate the willingness to pay for improvements in the air quality of chicago cleveland dallas houston and indianapolis the empirical results show i that the structural approach and the standard nonstructural approach give very different benefit figures even for small improvements in air quality and ii that a uniform improvement in air quality implies significant distributional effects

optimal product line pricing the influence of elasticities and cross elasticities the authors focus on the determination of optimal prices for products in a product line most firms offer more than a single brand and ultimately are concerned with the overall results of the enti

quality of the business environment versus quality of life do firms and households like the same cities this paper develops a new measure of the quality of business environment that complements existing measures of the quality of life an annual panel of these measures is constructed and analyzed for 37 cities from 1977 to 1995 findings indicate that many cities attractive to firms are unattractive to households and vice versa in addition the size of a city s workforce increases with improvements in the quality of the business environment in contrast cities most likely to be dominated by retirees are those that are less attractive to firms additional specifications support theoretical arguments that retirees are drawn to cities in which local attributes are capitalized into lower wages rather than higher rents

wages rents and amenities differences among workers and regions what explains persistent regional earnings differences this paper argues that regional differences in amenities can account for the wage differences in contrast cost of living variations do not account for wage differences but actually exacerbate them this conclusion results from a model in which variations in rents and wages are equalizing differences for amenity differences empirical results are consistent with the model

the link between crime risk and property prices in england and wales evidence from street level data this paper uses street level data on property sales and crime rates for england and wales to investigate compensating differentials for crime risk my identification strategy relies on the use of non parametric regional time trends on various levels of spatial aggregation as well as various fixed effects for streets and wider areas to control for unobserved amenities and regional economic conditions the data comes from transaction data collected by the land registry and recently published crime maps for the whole of the uk my estimates which are robust to a range of sensible specification changes suggest that each case of anti social behaviour per ten population in the same street leads to an approximately 0 6 0 8 drop in property prices while a corresponding increase in violent crime decreases prices by roughly 0 6 1 6 and a corresponding increase in non violent crime by about 0 2 0 4 the majority of estimates are at the upper end of these intervals estimates for robbery burglary and vehicle c

forcing firms to talk financial disclosure regulation and externalities we analyze a model of voluntary disclosure by firms and the desirability of disclosure regulation in our model disclosure is costly it has private and social value and its precision is endogenous we show that i a convexity in the value of disclosure can lead to a discontinuity in the disclosure policy ii the nash equilibrium of a voluntary disclosure game is often socially inefficient iii regulation that requires a minimal precision level sometimes but not always improves welfare iii the same is true for subsidies that change the perceived cost of disclosures and iv neither regulation method dominates the other article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

the market reaction to stock splits in this paper a model of market reaction to stock splits is presented and tested we argue that the announcement of a split sets off the following chain of events the market recognizes that subsequent to the reverse split ex day the daily number of transactions along with the raw volume of shares traded will increase decrease this increase in volume results in an increase in the noisiness of the security s return process the increase in noise raises the tax option value of the stock and it is this value that generates the announcement effect of stock splits empirical evidence using security returns daily trading volume and shareholder data strongly supports this theory the evidence in conjunction with this theory also agrees with extant literature that splits result in decreased liquidity but there is no evidence that this reduction in liquidity is priced stock splits have presented finance theorists with a conundrum these nonevents seem to be a purely cosmetic change nevertheless research shows that significant price reaction is attributable directly to splits recently grinblatt masulis and titman 12 show that even in clean cases i e where no other firm specific event coincides with a split announcement stock splits generate a positive abnormal return of close to three percent upon announcement and an additional one percent abnormal return on the ex day the primary contribution of this paper is to provide and empirically support a rational explanation for the split reverse split announcement effect a recent study by ohlson and penman 16 documents a statistical aberration that stock volatilities increase by an average of thirty five percent subsequent to split ex days in this paper we provide a direct statistical extension of ohlson and penman in three directions first we examine reverse splits and demonstrate that they exhibit reductions in volatility second we isolate the shift in volatility as between the nonsystematic and systematic components finally we establish a link between trading volume and the increased volatility copeland 9 shows that contrary to market folklore the liquidity of a stock is actually reduced by a split we provide a statistical extension to copeland by examining the volume pattern of reverse splits copeland observes a drop in split adjusted volume and concludes that liquidity has declined once again we show that the behavior of stocks that reverse split is opposite that of splitting stocks

on hedonic valuation of urban amenities using unbalanced data hedonic valuation of urban amenities often requires estimating housing and labor market regressions it is difficult to get both types of data for all survey respondents we show that the common practice of conducting two separate regressions with unbalanced data causes inconsistent covariance matrix estimation and improper inference regarding amenity values we demonstrate how two easily implementable yet consistent techniques can be used for hedonic valuation with an application in valuing temperature increases in urban brazil

a method for valuing global ecosystem services the goal of this paper is to provide an investigation of several approaches to valuing ecosystem services and to contribute additional techniques which may be used in evaluating green gdp accounts our estimates focus on the ecosystem as a productive economic input not a stock which is depreciated or depleted over time as such it differs with other concepts more frequently employed in green gdp accounting most of our results are derived from the analytical fiction that a single owner of the biosphere establishes a market for all ecological resources this monopolist then appropriates all rents from the human population the maximum amount the monopolist charges is first assumed to be world gross product less the global human subsistence level in addition we examine the excess rents available in factor markets using the assumption of weak complementarity between factor inputs and ecosystem services we also provide more conservative estimates of the value of ecosystem services by investigating the sustainable price the monopolist could charge the global population and by exploring the effects of compensating wage differentials and a non monopolist owner of the ecosystem 1998 elsevier science b v all rights reserved

compensation of regional unemployment in housing markets why are regional unemployment differentials in europe so persistent if as the wage curve literature demonstrates there is no compensation in labour markets we hypothesize that workers in high unemployment regions are compensated in housing markets modelling regional unemployment differentials as a consequence of centralized wage bargaining we show that clearing of land markets may undo the incentive for workers to migrate to low unemployment regions in general equilibrium the compensating differentials hypothesis is tested on city level data for several countries controlling for variation in income and amenities housing is found to be about 3 percent less expensive on average in cities where unemployment is 10 percent up an analysis of housing demand survey data which takes account of housing heterogeneity yields a similar negative relationship the magnitude of the income effect generated by this compensating differential is consistent with a 0 10 wage curve elasticity these findings weaken the case for regional support programs

practice prize winner pricing digital content product lines a model and application for the national academies press we examine the problem of how a content provider specifically the national academies press nap can optimally price the different forms of its product print and pdf that it sells online whereas products in the traditional product line generally tend to be substitutes the different content product forms could range from being substitutes to being complements across customers thus the content provider can possibly sell bundles of the product forms leading to additional revenue we first discuss nap s decision context and describe the model we proposed for developing nap s optimal pricing policies for its different forms we describe the choice experiment we conducted on the publisher s website that maximally uses the online interface to collect relevant data needed to estimate our model we show how nap embraced the results from the model for developing a new business model and how it used the insights derived from the study to set pricing policies and monitor sales performance as a function of pricing finally we perform validation of the model and the implemented policies using dynamic modeling of sales data from nap s website the paper illustrates how e commerce technologies can lead to the development of optimal policies using marketing models

hedonic prices goods specific effects and functional form inferences from cross section time series data tests for two key elements of the hedonic model of price determination for differentiated goods are proposed when cross sectional time series data are available first the hedonic hypothesis that price is determined by sellers and buyers valuations of characteristics bundled in a good is tested against the alternative that consumers demand specific goods the sensitivity of the outcome of the test to unmeasured characteristics serial correlation or heteroscedasticity and misspecification of functional form is assessed second a novel approach to testing functional form illustrates limitations of testing hedonic specifications only against alternatives nested in the box cox functional form

does energy efficiency matter to home buyers an investigation of epc ratings and transaction prices in england abstract this paper investigates whether energy performance ratings as measured by mandatory energy performance certificates epcs are reflected in the sale prices of residential properties this is the first large scale empirical study of this topic in england involving 333 095 dwellings sold at least twice in the period from 1995 to 2012 applying hedonic regression and an augmented repeat sales regression we find a positive relationship between the energy efficiency rating of a dwelling and the transaction price per square metre the price effects of superior energy performance tend to be higher for terraced dwellings and flats compared to detached and semi detached dwellings the evidence is less clear cut for rates of house price growth but remains supportive of a positive association overall the results of this study suggest that energy efficiency labels have a measurable and significant impact on house prices in england

intra regional amenities wages and home prices the role of forests in the southwest forests provide non market goods and services that people are implicitly willing to pay for through hedonic housing and labor markets but it is unclear if compensating differentials arise in these markets at the regional level this empirical question is addressed in a study of arizona and new mexico hedonicregressionsofhousingpricesandwagesusing census and geographic data show that forest area carries an implicit price of between 27 and 36 per square mile annually compensating differentials at the regional level suggest that care must be taken when applying the travel cost method to value regionallydelineated characteristics jel q23 r14

public trading and private incentives this article studies the link between public trading and the activity of a firm s large shareholder who can affect firm value public trading results in the formation of a stock price that is informative about the large shareholder s activity this increases the latter s incentives to engage in value increasing activities indeed if he has to liquidate part of his stake before the effect of his activity is publicly observed a more informative price rewards him for his activity implications are derived for the decision to go public capital structure and security design we consider a firm with a large shareholder and otherwise dispersed shares which are publicly traded the block holder is an insider in the sense that he can undertake actions that directly affect the firm s value moreover the insider might not take all value increasing actions as at least some of them involve a private cost for him in other words there is an incentive problem the article s main premise is that public trading as part of the price formation process generates information not only about exogenous factors affecting firm value but also about the insider s activity for instance as a result of public trading a firm s stock price will incorporate the market s evaluation of how a controlling shareholder allocates corporate resources we identify two sources of incentives for the insider to engage in activities that will increase firm value the first one is his stake in the firm since the insider participates in a value increase in proportion to his equity stake a larger stake increases the benefit to him from the firm value being high the view that large shareholders affect firm value is indeed widespread shleifer and vishny 1997 they alleviate the free rider problem pervasive in firms with passive dispersed investors unable or unwilling to affect the firm s operations that is outsiders

mistake 37 the effect of previously encountered prices on current housing demand based on contrast effects studies from psychology we predicted that movers arriving from more expensive cities would rent pricier apartments than those arriving from cheaper cities we also predicted that as people stayed in their new city they would get used to the new prices and would readjust their housing expenditures countering the initial impact of previous prices we found support for both predictions in a sample of 928 movers from the psid alternative explanations based on unobserved wealth and taste and on imperfect information are ruled out

a general choice model for bundles with multiple category products application to market segmentation and optimal pricing for bundles abstract the attribute based approach to study customer choices cannot deal with bundles of heterogeneous components which are usually drawn from different product categories the authors develop the comparability based balance model which is a unified framework for modeling bundle choices the model can be employed for any bundle regardless of the heterogeneity of bundle components under a pure bundling strategy the conjoint model and balance model are special cases of the general model the authors use mixture distributions in a hierarchical bayesian framework to incorporate consumer heterogeneity in a more flexible manner than the extant approaches such as latent class and random coefficient models the empirical tests of the model show that most attribute effects are significant and consistent with the model s predictions the model is superior to those that do not consider the issues of comparability of attributes latent class structure and heterogeneity among respondents the authors show how

public infrastructure investments productivity and welfare in fixed geographic areas abstract measures of the value of public investments are critical inputs into the policy process and aggregate production and cost functions have become the dominant methods of evaluating these benefits this paper examines the limitations of these approaches in light of applied production and spatial equilibrium theories a spatial equilibrium model of an economy with nontraded localized public goods like infrastructure is proposed and a method for identifying the role of public capital in firm production and household preferences is derived empirical evidence from a sample of large us cities suggests that public capital provides significant marginal benefits but the marginal productivity of public capital is low and aggregate city willingness to pay for large increases in public capital is less than their cost the paper concludes with a brief discussion of the political economy of urban infrastructure investment

local amenities and life cycle migration do people move for jobs or fun abstract do households move for jobs or fun and where do they go when they move we address these questions using the 1970 2000 us census based on a panel of quality of life and business environment measures households prefer msas in warm coastal areas and non metropolitan locations while firms prefer large growing cities in addition cities with improving business environments acquire increasing shares of workers especially workers with high levels of human capital cities with improving consumer amenities become relatively more populated by retirees further analysis of individual level migration decisions indicates that regardless of marital status young highly educated households tend to move towards places with higher quality business environments this tendency is especially pronounced among highly educated couples who are more subject to job market co location problems in contrast regardless of education couples near retirement tend to move away from places with favorable business environments and towards places with highly valued consumer amenities these patterns help explain why areas unattractive to both households and business have struggled as with upstate new york while the sun belt and other regions are thriving