econ 144b midterm study guide.pdf

# Control for various housing characteristics 2 hedonic

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Control for: various housing characteristics 2. Hedonic value of amenity i in wage(or income) earnings a. 𝝁 j (hat) i. Control for: age, education, experience - worker characteristics Simple: estimate 𝛃 i 𝛃 i (hat) = 𝛅 i (hat) - 𝝁 j (hat) Hedonic regression of housing prices

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Hedonic regression of wages Firm valuation of amenities QoBE (quality of business environment) Hedonic wage regression Hedonic real estate prices regression 𝞬 (hat) i : marginal value of amenity i for a firm QoL QoBE 1. Miami 34th 2. San Diego 10th 3. LA - Long Beach 5th 4. San Francisco 2nd 5. Tampa 37th Equilibrium - Migration - occurs from low amenity regions to high amenity regions If amenities have low(zero or little) effect on firm costs, then high amenity regions have higher housing prices and lower incomes compared to low amenity regions Roback Model Summary Y P City A 100 40 City B Yb 30 City A bike-path amenity a=1 City B not bike friendly a=0 1. MC expect y b i. y b =y a ii. y b >y a iii. y b < y a iv. Cannot say
2. If firms are not affected by the bike path, then y b >y a 3. If the effect of amenities of costs is unknown, then which cases are possible? a. y b =y a b. y b >y a c. y b < y a d. All are possible We know that P b > P a V=y-p+ 𝛅 a C=y+p+ 𝞬 a 𝛅 : marginal valuation of amenity in utility 𝞬 : marginal valuation of amenity in firm costs 𝞬 =0 r<0
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