1995 Reports

New Estimates on Climate Demand: Evidence from Location Choice

Cragg, Michael; Kahn, Matthew E.

This paper builds on Graves' (1979) migration research on climate demand and on Rosen's (1974) research agenda of identifying structural demand parameters for capitalized non-market amenities. Graves (1972, 1982, 1985) has used aggregated migration net flow data to quantify migratory elasticities with respect to local amenities. Our research extends this earlier migration research along two dimensions. First, the opportunity cost of locational choice can be further disaggregated. Second, earlier reduced form research's coefficient estimates could not be used for calculating consumer surplus from amenities. One of the only empirical papers to attempt to identify structural parameters is Quigley (1982). His contribution was to combine knowledge of the non-linear budget constraints with an explicit parameterization of the utility function to estimate structure parameters. Our discreet choice method closely mirrors this methodology. Our estimates of willingness to pay for amenities build Bartik, Butler and Liu's (1992) estimates of amenities demand as revealed by the initial decision of whether to move. Our research also adds to the hedonic quality of life literature. Migration data offers an additional source of information that has not been exploited in equilibrium hedonic studies. In the 1980s, several studies pointed out the inherent difficulties of conducting the "standard" hedonic two stage identification procedure. The hedonic literature has ranked locations based on index weights generated by how much people pay for each attribute. Our paper offers an alternative method for ranking locations based on how much people are willing to pay.