A Dynamic Model of Demand for Houses and Neighborhoods
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.
This paper is a revised version of NBER Working Paper No. 17025. We would like to thank Kelly Bishop, Morris Davis, Ed Glaeser, Phil Haile, Aviv Nevo, participants at the Econometric Society Summer Meetings, NBER Summer Institute, Regional Science Annual Meetings, Stanford Institute for Theoretical Economics, and seminar participants at the University of Arizona, Duke, UBC, Georgetown, Minnesota, NYU, Northwestern, Ohio State, Queen’s, Rochester, St. Louis Federal Reserve, and Yale for many valuable suggestions. Co-editor Jean-Marc Robin and three anonymous referees provided numerous comments that have helped us improve the paper significantly. Thanks to Elliot Anenberg for excellent research assistance. Financial support from the National Science Foundation and SSHRC is gratefully acknowledged. All remaining errors are our own. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Patrick Bayer & Robert McMillan & Alvin Murphy & Christopher Timmins, 2016. "A Dynamic Model of Demand for Houses and Neighborhoods," Econometrica, Econometric Society, vol. 84, pages 893-942, 05. citation courtesy of