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

An equilibrium model predicts that inter-city differences in firm productivity, and the full value of local amenities cannot be inferred without land values. These may be inferred from ordinary wage and housing-cost data using the housing-cost function if housing-sector productivity is constant. A calibrated model predicts how quality-of-life and production amenities are capitalized differently into land values, wages, housing costs, and federal-tax payments. The total value of these amenities are estimated across U.S. cities. Wages and housing costs 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 January 13, 2014

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