NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

What Are Cities Worth? Land Rents, Local Productivity, and the Capitalization of Amenity Values

David Albouy

NBER Working Paper No. 14981
Issued in May 2009
NBER Program(s):   EEE   PE

This article examines and quantifies the relationship between local amenities and prices in an equilibrium model, demonstrating the role of non-traded goods and federal taxes. I derive formulae using factor shares to infer local land rents, productivity, and the total value of amenities from wage and housing-cost data, applying them to U.S. metropolitan areas. The formulae address how “wage multipliers,” heterogeneity in non-traded firm productivity, and tax-driven amenity value expropriation affect price capitalization. Wage and housing-cost variations across metros are driven more by productivity than quality-of-life differences. The most productive and valuable cities are typically coastal, sunny, mild, educated and large.

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This paper was revised on March 10, 2015

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Document Object Identifier (DOI): 10.3386/w14981

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