Household Expenditures, Wages, Rents

27 Pages Posted: 6 Dec 2007

See all articles by Morris A. Davis

Morris A. Davis

Rutgers Business School

François Ortalo-Magné

Wisconsin School of Business; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Date Written: December 2007

Abstract

We provide new evidence from the 1980, 1990, and 2000 Decennial Census of Housing that the expenditure share on housing is constant over time and across U.S. metropolitan areas (MSA). Consistent with this observation, we consider a basic model in which identical households with Cobb-Douglas preferences for housing and numeraire consumption choose an MSA in which to live and MSAs differ with respect to income earned by residents. We compute constant-quality wages and rental prices for a sample of 50 U.S. MSAs. Given estimated wages, the calibrated model predicts that rental prices should be more dispersed than observed. That is, the model suggests that rental prices are too low in many high-wage MSAs in the year 2000.

Keywords: household expenditures, housing prices, Cobb-Douglas utility

JEL Classification: D10, R21

Suggested Citation

Davis, Morris A. and Ortalo-Magne, Francois, Household Expenditures, Wages, Rents (December 2007). CESifo Working Paper No. 2156. Available at SSRN: https://ssrn.com/abstract=1063161

Morris A. Davis

Rutgers Business School ( email )

Rutgers Business School
One Washington Park #1092
Newark, NJ 07102
United States

Francois Ortalo-Magne (Contact Author)

Wisconsin School of Business ( email )

4300 Grainger Hall
975 University Avenue
Madison, WI 53706-1323
United States
608-262-7867 (Phone)
608-262-7867 (Fax)

HOME PAGE: http://francois.marginalq.com

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

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