WEAI/AERE 2009 - Individual Paper Abstract
Title: The Value of Climate Amenities: Evidence from U.S. Migration Decisions
Author(s): Paramita SINHA, RTI International; Maureen L. Cropper, Department of Economics, University of Maryland, College Park, MD 20742, cropper@econ.umd.edu , (301) 405-3483 (picture credit: Noelwah Netusil)
Abstract:
There is a large literature that attempts to value climate amenities in the US and elsewhere using the fact that climate amenities are capitalized into wages and property values. Many of these estimates, which were produced in the 1970s and 1980s, assume that people are perfectly mobile and are based on estimates of national hedonic wage and property value functions. These functions will yield biased estimates of consumers' willingness-to-pay for climate amenities if consumers are not in locational equilibrium, as may occur due to information or other moving costs.
We value climate amenities by estimating a discrete model of residential location choice for households who changed metropolitan statistical areas (MSAs) between 1995 and 2000. We assume that the utility that a household derives from living in an MSA depends on climate amenities along with earnings potential, housing costs and locationspecific amenities. To avoid assuming a national labor market we estimate separate hedonic wage functions for each MSA to predict earnings opportunities in each city. Households choose the MSA where they derive maximum utility. The model is estimated using a two step procedure (Bayer, Keohane and Timmins, 2006). In the first stage, location-specific constants are estimated together with other parameters of the utility function. In the second stage, location-specific intercepts are regressed on locationspecific amenities and housing costs to estimate the average utility attached to these amenities.
We find winter temperature and summer precipitation to be amenities, but summer temperature to have no statistically significant effect on migration decisions. Models estimated using "stayers" as well as movers suggest that the former are not in equilibrium; and hence that their location decisions cannot be used to estimate the value they attach to climate amenities. We also construct counterfactual climate scenarios and predict how changes in temperature and precipitation might have altered migration patterns between 1995 and 2000.