Download This PaperAre Poor Cities Cheap for Everyone? Non-Homotheticity and the Cost of Living Across U.S. Cities
The Wharton School Research Paper No. 71
Kilts Center for Marketing at Chicago Booth – Nielsen Dataset Paper Series 1-054
104 Pages Posted: 30 Oct 2014 Last revised: 5 Dec 2019
There are 3 versions of this paper
Are Poor Cities Cheap for Everyone? Non-Homotheticity and the Cost of Living Across U.S. Cities
Are Poor Cities Cheap for Everyone? Non-Homotheticity and the Cost of Living Across U.S. Cities
Are Poor Cities Cheap for Everyone? Non-Homotheticity and the Cost of Living Across U.S. Cities
Date Written: June 21, 2013
Abstract
This paper shows that the products and prices offered in markets are correlated with local income-specific tastes. To quantify the welfare impact of this variation, I calculate local price indexes micro-founded by a model of non-homothetic demand over thousands of grocery products. These indexes reveal large differences in how wealthy and poor households perceive the choice sets available in wealthy and poor cities. Relative to low-income households, high-income households enjoy 40 percent higher utility per dollar expenditure in wealthy cities, relative to poor cities. Similar patterns are observed across stores in different neighborhoods. Most of this variation is explained by differences in the product assortment offered, rather than the relative prices charged, by chains that operate in different markets.
Keywords: Non-homotheticity, price index, variety, cost of living
JEL Classification: R12, R22, L81
Suggested Citation: Suggested Citation