What are Cities Worth? Land Rents, Local Productivity, and the Capitalization of Amenity Values
University of Michigan at Ann Arbor - Department of Economics; National Bureau of Economic Research (NBER)
NBER Working Paper No. w14981
This article examines and quantifies the relationship between local amenities and prices in an equilibrium model, demonstrating the role of non-traded goods and federal taxes. I derive formulae using factor shares to infer local land rents, productivity, and the total value of amenities from wage and housing-cost data, applying them to U.S. metropolitan areas. The formulae address how “wage multipliers,” heterogeneity in non-traded firm productivity, and tax-driven amenity value expropriation affect price capitalization. Wage and housing-cost variations across metros are driven more by productivity than quality-of-life differences. The most productive and valuable cities are typically coastal, sunny, mild, educated and large.
Number of Pages in PDF File: 70
Date posted: May 26, 2009
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