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Choosing Your Pond: Location Choices and Relative Income

Nicolas L. Bottan, Ricardo Perez-Truglia

NBER Working Paper No. 23615
Issued in July 2017, Revised in August 2018
NBER Program(s):Public Economics, Political Economy

We propose that, when individuals are deciding where to live, they care about the position in the income distribution in their prospective location. To test this hypothesis, we develop a new methodology to estimate preferences over location characteristics that combines choice data, survey data and information-provision experiments. We implement this methodology with a sample of 1,080 senior medical students who participated in the National Resident Matching Program. These subjects were choosing the cities to which they would move and live in for the next five years. We provide suggestive evidence that individuals care about what their relative income would be in a prospective city, and that those preferences have substantial heterogeneity by relationship status. Using a separate subject pool, we replicate our findings and provide tests for the underlying mechanisms.

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Document Object Identifier (DOI): 10.3386/w23615

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