David Albouy, Heepyung Cho and Mariya Shappo

Journal of Regional Science, January 2021, 61(1),5-29

Immigrants to the United States live disproportionately in metropolitan areas where nominal wages are high, but real wages are low. This sorting behavior may be due to preferences toward certain quality-of-life amenities. Relative to U.S.-born inter-state migrants, immigrants accept lower real wages to locate in cities that are coastal, larger, and offer deeper immigrant networks. They sort toward cities that are hillier and also larger and networked. Immigrants come more from coastal, cloudy, and safer countries—conditional on income and distance. They choose cities that resemble their origin in terms of winter temperature, safety, and coastal proximity.

David Albouy and Bryan Stuart

International Economic Review, February 2020, 61, 127-158

We develop a neoclassical general equilibrium model to explain cross-metro variation in population and density. We provide new methods to estimate traded and nontraded productivities, and elasticities of housing and land supply, using density and land area data. From wage and housing cost indices, the model explains half of U.S. density and population variation and finds that quality of life determines location choices more than trade productivity; productivity and factor substitution in housing matter most, but are weak in nicer areas. Relaxing land use regulations would increase population in the West, raising both quality of life and productivity experienced by residents.

David Albouy, Peter Christensen and Ignacio Sarmiento

Journal of Public Economics, February 2020, 182, 104-110

Abstract:

Public goods may exhibit complementarities that are essential for determining their individual value. Our results indicate that improving safety near parks can turn them from public bads to goods. Ignoring complementarities may lead to i) undervaluing the potential value of public goods; ii) overestimating heterogeneity in preferences; and iii) understating the value of public goods to minority households. Recent reductions in crime have “unlocked” almost $7 billion in property value in Chicago, New York and Philadelphia. Still, two-fifths of the potential value of park proximity, $10 billion, remains locked-in.

David Albouy, Alex Chernoff, Chandler Lutz, and Casey Warman

Journal of Labor Economics, July 2019, 37(S2), S533-S594

We examine US and Canadian local labor markets from 1990 to 2011 using comparable household and business data. Wage levels and inequality rise with city population in both countries, albeit less in Canada. Neither country saw wage levels converge despite contrasting migration patterns from/to high-wage areas. Local labor demand shifts raise nominal wages similarly, although in Canada they attract immigrant and highly skilled workers more while raising housing costs less. Chinese import competition had a weaker negative impact on manufacturing employment in Canada. These results are consistent with Canada’s more redistributive transfer system and larger, more educated immigrant workforce.

David Albouy, Kristian Behrens, Frederic Robert-Nicoud, and Nathan Seegert

Journal of Urban Economics, March 2019, 110, 102-113

The received economic wisdom is that cities are too big and that public policy should limit their sizes. This wisdom assumes, unrealistically, that city sites are homogeneous, migration is unfettered, land is given freely to incoming migrants, and federal taxes are neutral. Should those assumptions not hold, large cities may be inefficiently small. We prove this claim in a system of cities with heterogeneous sites and either free mobility or local governments, where agglomeration economies, congestion, federal taxation, and land ownership create wedges. A quantitative version of our model suggests that cities may well be too numerous and underpopulated for a wide range of plausible parameter values. The welfare costs of free migration equilibria appear small, whereas they seem substantial when local governments control city size.

David Albouy and Gabriel Ehrlich

Journal of Urban Economics, September 2018, 107, 101-120

We use metro-level variation in land and structural input prices to test and estimate a housing cost function with differences in local housing productivity. Both OLS and IV estimates imply that stringent regulatory and geographic restrictions substantially increase housing prices relative to land and construction input costs. The typical cost share of land is one-third, and substitution between inputs is inelastic. A disaggregated analysis of regulations finds state-level restrictions are costlier than local ones and provides a Regulatory Cost Index (RCI). Housing productivity falls with city population. Typical land-use restrictions impose costs that appear to exceed quality-of-life benefits, reducing welfare on net.

David Albouy, Gabriel Ehrlich, Minchul Shin

The Review of Economics and Statistics (2018) 100 (3): 454–466

We estimate the first cross-sectional index of transaction-based land values for every U.S. metropolitan area. The index accounts for geographic selection and incorporates novel shrinkage methods using a prior belief based on urban economic theory. Land values at the city center increase with city size, as do land-value gradients; both are highly variable across cities. Urban land values are estimated at more than two times GDP in 2006. These estimates are higher and less volatile than estimates from residual (total - structure) methods. Five urban agglomerations account for 48% of all urban land value in the United States.

Review of Economics and Statistics, July 2016, 98(3), 477-487

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.

David Albouy, Walter Graf, Ryan Kellogg, and Hendrik Wolff

Journal of the Association of Environmental and Resource Economists, 3(1), March 2016, pp. 205-246

We present a hedonic framework to estimate U.S. households’ preferences over local climates, using detailed weather and 2000 Census data. We find that Americans favor a daily average temperature of 65 degrees Fahrenheit, that they will pay more on the margin to avoid excess heat than cold, and that damages increase less than linearly over extreme temperatures. These preferences vary by location due to sorting or adaptation. Changes in climate amenities under business-as-usual predictions imply annual welfare losses of 1 to 4 percent of income by 2100, holding technology and preferences constant.

David Albouy and Bert Lue

Journal of Urban Economics, September 2015, 89, 74-92.

We examine variation in local rents, wage levels, commuting costs, household characteristics, and amenities within metropolitan areas, for 2071 areas covering the United States, by density and central-city status. We demonstrate the sensibility of estimating wage levels by workplace, not residence, and recover decentralized rent gradients that fall with commuting costs. We construct and map a willingness-to-pay index, which indicates the quality of life typical households receive from local amenities when households are similar, mobile, and informed. This index varies considerably within metros, and is typically high in areas that are dense, suburban, sunny, mild, safe, entertaining, and have elevated school-funding.

David Albouy and Andrew Hanson

NBER Tax Policy and the Economy, 28, 2014: 63–96

Tax benefits to owner-occupied housing provide incentives to consume housing, offsetting weaker disincentives of the property tax. These benefits also help counter the penalty federal taxes impose on households who work in productive high-wage areas, but reinforce incentives to consume local amenities. We simulate the effects of these benefits in a parameterized model, and determine the consequences of various tax reforms. Reductions in housing tax benefits generally increase efficiency in consumption, but reduce efficiency in location decisions, unless they are accompanied by tax rate reductions. The most efficient policy would eliminate most tax benefits to housing and index taxes to local wage levels.

David Albouy, Fernando Leibovici and Casey Warman

Canadian Journal of Economics, May 2013 46(2).

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. JEL classification: J61, R1

Review of Economics and Statistics. March 2013 95(1),127-141.

In a two-party legislature, districts represented by the majority may receive greater funds if majority-party legislators have greater proposal power or disproportionately form coalitions with each other. Funding types received by districts may depend on their legislators' party-identity when party preferences differ. Estimates from the United States - using fixed-effect and regression-discontinuity designs - indicate that states represented by members of Congress in the majority receive greater federal grants, especially in transportation, and defense spending. States represented by Republicans receive more for defense and transportation than those represented by Democrats; the latter receive more spending for education and urban development.

American Economic Review, October 2012, 102(6), 3059-3076.

Acemoglu, Johnson, and Robinson's (2001) seminal article argues property-rights institutions powerfully affect national income, using estimated mortality rates of early European settlers to instrument capital expropriation risk. However, 36 of the 64 countries in the sample are assigned mortality rates from other countries, often based on mistaken or conflicting evidence. Also, incomparable mortality rates from populations of laborers, bishops, and soldiers—often on campaign—are combined in a manner that favors the hypothesis. When these data issues are controlled for, the relationship between mortality and expropriation risk lacks robustness, and instrumental-variable estimates become unreliable, often with infinite confidence intervals. (JEL D02, E23, F54, I12, N40, O43, P14)

Journal of Public Economics, October 2012, 96(9-10), 824-839. (Winner of the Peggy and Richard Musgrave Prize.)

In theory, federal transfers that make household location decisions efficient should ignore local cost differences, subsidize positive externalities, and offset differences in federal-tax payments and local taxes levied on non-residents, but not local tax revenues from residents. Transfers that redistribute resources equitably across regions will likely target areas with individuals of low earnings potential or low real incomes. Applying these criteria empirically, Canadian equalization policy appears neither efficient nor equitable, but exacerbates pre-existing inefficiencies and underfunds minorities. Locational inefficiencies cost Canada 0.41 percent of income annually and cause over-funded provinces to have populations 31 percent beyond their efficient long-run levels.

Electoral Studies, March 2011, 30(1), 162-173.

Using quasi-experimental evidence from close elections, Lee et al. (2004) – henceforth LMB – argue competition for voters in U.S. House elections does not affect policy positions, as incumbent Senate candidates do not vote more extremely if elected than non-incumbents. Despite stronger electoral competition and greater legislative independence, similar results, shown here, hold for the Senate. Yet, the hypothesis that voters do not affect policies conflicts with how Senators moderate their positions prior to their next election. LMB-style estimates appear to be biased downwards as junior members of Congress prefer to vote more extremely than senior members, independently of their electoral strength. Corrected estimates are more favorable to the hypothesis that candidates moderate their policy choices in response to electoral competition.

Journal of Political Economy, August 2009, 117(4), 635-667.

In the United States, workers in cities offering above-average wages—cities with high productivity, low quality of life, or inefficient housing sectors—pay 27 percent more in federal taxes than otherwise identical workers in cities offering below-average wages. According to simulation results, taxes lower long-run employment levels in high-wage areas by 13 percent and land and housing prices by 21 and 5 percent,causing locational inefficiencies costing 0.23 percent of income, or $28 billion in 2008. Employment is shifted from north to south and from urban to rural areas. Tax deductions index taxes partially to local cost of living, improving locational efficiency.

Canadian Journal of Economics, November 2008, 41(4), 1211-1238. (Winner of the Robert Mundell Prize.)

The wage gap between Francophone and Anglophone men from 1970 and 2000 fell by 25 percentage points within Quebec, but only by 10 points Canada-wide, largely because the wages of Quebec Anglophones fell by 15 points relative to other Canadian Anglophones. Accordingly, the Canadian measure of the Francophone gap better reflects the changing welfare of Francophones than the Quebec measure. Over half of the reduction in the Canadian Francophone wage gap is explained by rising Francophone education levels. In Quebec, the declining number and relative wages of Anglophone workers is best explained by a falling demand for English-speaking labour. JEL classification: J700,J200