Essays in Applied Microeconomics

This dissertation consists of three studies analyzing causes and consequences of location decisions by economic agents in the U.S. In Chapter 1, I address the longstanding question of the extent to which the geographic clustering of economic activity may be attributable to agglomeration spillovers as opposed to natural advantages. I present evidence on this question using data on the long-run effects of large scale hydroelectric dams built in the U.S. over the 20th century, obtained through a unique comparison between counties with or without dams but with similar hydropower potential. Until mid-century, the availability of cheap local power from hydroelectric dams conveyed an important advantage that attracted industry and population. By the 1950s, however, these advantages were attenuated by improvements in the efficiency of thermal power generation and the advent of high tension transmission lines. Using a novel combination of synthetic control methods and event-study techniques, I show that, on average, dams built before 1950 had substantial short run effects on local population and employment growth, whereas those built after 1950 had no such effects. Moreover, the impact of pre-1950 dams persisted and continued to grow after the advantages of cheap local hydroelectricity were attenuated, suggesting the presence of important agglomeration spillovers. Over a 50 year horizon, I estimate that at least one half of the long run effect of pre-1950 dams is due to spillovers. The estimated short and long run effects are highly robust to alternative procedures for selecting synthetic controls, to controls for confounding factors such as proximity to transportation networks, and to alternative sample restrictions, such as dropping dams built by the Tennessee Valley Authority or removing control counties with environmental regulations. I also find small local agglomeration effects from smaller dam projects, and small spillovers to nearby locations from large dams. Lastly, I find relatively small costs of environmental regulations associated with hydroelectric licensing rules. In Chapter 2, I study the joint choice of spouse and location made by individuals at the start of their adult lives. I assume that potential spouses meet in a marriage market and decide who to marry and where they will live, taking account of varying economic opportunities in different locations and inherent preferences for living near the families of both spouses. I develop a theoretical framework that incorporates a collective model of household allocation, conditional on the choice of spouse and location, with a forward-looking model of the marriage market that allows for the potential inability of spouses to commit to a particular intra-household sharing rule. I address the issue of unobserved heterogeneity in the tastes of husbands and wives using a control-function approach that assumes there is a one-to-one mapping between unobserved preferences of the two spouses and their labor supply choices. Estimation results for young dual-career households in the 2000 Census lead to three main findings. First, I find excess sensitivity of the sharing rule that governs the allocation of resources among couples to the conditions in the location they actually choose, implying that spouses cannot fully commit to a sharing rule. Second, I show that the lack of commitment has a relatively larger effect on the share of family resources received by women. Third, I find that the failure of full commitment can explain nearly all of the gap in the interstate migration rates of single and married people in the U.S. Finally, in Chapter 3, I examine unintended consequences of environmental regulations affecting the location of power plants. I present evidence that while hydroelectric licensing rules do conserve the wilderness and the wildlife by restricting the development of hydro projects in some counties, they lead to more greenhouse gas emissions in those same locations. Such environmental regulations aimed to preserve natural ecosystems do not seem to really protect nature. Basically, land conservation regulations give rise to a replacement of hydropower, which is a renewable, non-emitting source of energy, with conventional fossil-fuel power, which is highly pollutant. Restrictions imposed by hydroelectric licensing rules might be used as leverage by electric utilities to get permits to expand thermal power generation. Each megawatt of hydropower potential that is not developed because of those regulations induces the production of the average emissions of carbon dioxide per megawatt of U.S. coal-fired power plants. Environmental regulations focusing only on the preservation of ecosystems appears to stimulate dirty substitutions within electric utilities regarding electricity generation.