NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

A Dynamic Model of Demand for Houses and Neighborhoods

Patrick Bayer, Robert McMillan, Alvin Murphy, Christopher Timmins

NBER Working Paper No. 17250
Issued in July 2011
NBER Program(s):   EEE   IO   PE

This paper develops a dynamic model of neighborhood choice along with a computationally light multi-step estimator. The proposed empirical framework captures observed and unobserved preference heterogeneity across households and locations in a flexible way. The model is estimated using a newly assembled data set that matches demographic information from mortgage applications to the universe of housing transactions in the San Francisco Bay Area from 1994- 2004. The results provide the first estimates of the marginal willingness to pay for several non-marketed amenities – neighborhood air pollution, violent crime and racial composition – in a dynamic framework. Comparing these estimates with those from a static version of the model highlights several important biases that arise when dynamic considerations are ignored.

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This paper was revised on February 11, 2015

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Document Object Identifier (DOI): 10.3386/w17250

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