Authors Rebecca Diamond Enrico Moretti Discussant:
Description: Authors Rebecca Diamond Enrico Moretti Discussant: Gabriel M Ahlfeldt, LSECEPR 2022, Urban Economics Workshop, Barcelona WHERE IS STANDARD OF LIVING THE HIGHEST? LOCAL PRICES AND THE GEOGRAPHY OF CONSUMPTION GENERAL CONTRIBUTION Expected
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slide1. Authors
Rebecca Diamond
Enrico Moretti
Discussant: Gabriel M Ahlfeldt, LSE/CEPR
2022, Urban Economics Workshop, Barcelona WHERE IS STANDARD OF LIVING THE HIGHEST? LOCAL PRICES AND THE GEOGRAPHY OF CONSUMPTION<br>
slide2. GENERAL CONTRIBUTION Expected utility in QSM (Ahlfeldt, Roth, Seidel, 2021) (expected) wages Quality of life / amenities Commuting costs Housing prices<br>
slide3. OBVIOUS SPECIFIC CONTRIBUTIONS Use a fantastic data set in which they observe
Consumption volumes (p*Q)
Consumption prices (p)
Hence, consumption quantities (Q)
To show
Large differences in cost of living (p) (100% from bottom to top)
Large differences in consumption (Q) (75% from bottom to top)
Price elasticity of consumption about -1 (Cobb Douglas)
Skill-biased NET-returns to agglomeration
(mildly) 0ositive for HS, (strongly) negative for LS<br>
slide4. MORE HIDDEN SPECIFIC CONTRIBUTIONS How we deal with consumption prices in urban economics?
Model price index, e.g. Armington
Non-trivial to estimate right trade costs
What about local non-tradable services?
What about international trade?
Assume non-housing goods do not vary in space (standard)
Then use this price index (PI) to infer quality of life and value of amenities a la Rosen-Roback<br>
slide5. MORE HIDDEN SPECIFIC CONTRIBUTIONS Diamond-Moretti suggest that is not a good idea
Prices of non-housing consumption goods vary, too
Variation systematically related to productivity/income
But good news! That sounds great, but what exactly should we do?<br>
slide6. MORE HIDDEN SPECIFIC CONTRIBUTIONS Implication/interpretation of Diamon-Moretti:
How to account for variation in local non-tradable prices?
This implies:<br>
slide7. MORE HIDDEN SPECIFIC CONTRIBUTIONS So we get
This regression gives very high r2 (>0.9) Real cost of living differentials are much larger than we thought! Affects how we should think about QoL differentials (delicate issue given that there are migration frictions) Need to adjust cost-of-living indices!<br>
slide8. MORE HIDDEN SPECIFIC CONTRIBUTIONS So we get
This regression gives very high r2 (>0.9) Real cost of living differentials are much larger than we thought! Affects how we should think about QoL differentials (delicate issue given that there are migration frictions) Need to adjust cost-of-living indices!<br>
slide9. ONE OPEN QUESTION What restores the spatial equilibrium? MC > MB MC < MB MC > MB MC < MB At some point, MC must exceed MB of living in bigger city City
U City
pop City
pop City
U<br>
slide10. ONE OPEN QUESTION MC always exceeds MB MC never exceeds MB Need idiosyncratic tastes, migration costs, or skill-specific amenity-related congestion forces to rationalize dispearsion of skill groups Or wage elasticities are too large – sorting on unobserables tends to reduce wage elasticity from ≈ 4% to 2% (sorting matters)<br>
slide11. THANKS<br>
Rebecca Diamond
Enrico Moretti
Discussant: Gabriel M Ahlfeldt, LSE/CEPR
2022, Urban Economics Workshop, Barcelona WHERE IS STANDARD OF LIVING THE HIGHEST? LOCAL PRICES AND THE GEOGRAPHY OF CONSUMPTION<br>
slide2. GENERAL CONTRIBUTION Expected utility in QSM (Ahlfeldt, Roth, Seidel, 2021) (expected) wages Quality of life / amenities Commuting costs Housing prices<br>
slide3. OBVIOUS SPECIFIC CONTRIBUTIONS Use a fantastic data set in which they observe
Consumption volumes (p*Q)
Consumption prices (p)
Hence, consumption quantities (Q)
To show
Large differences in cost of living (p) (100% from bottom to top)
Large differences in consumption (Q) (75% from bottom to top)
Price elasticity of consumption about -1 (Cobb Douglas)
Skill-biased NET-returns to agglomeration
(mildly) 0ositive for HS, (strongly) negative for LS<br>
slide4. MORE HIDDEN SPECIFIC CONTRIBUTIONS How we deal with consumption prices in urban economics?
Model price index, e.g. Armington
Non-trivial to estimate right trade costs
What about local non-tradable services?
What about international trade?
Assume non-housing goods do not vary in space (standard)
Then use this price index (PI) to infer quality of life and value of amenities a la Rosen-Roback<br>
slide5. MORE HIDDEN SPECIFIC CONTRIBUTIONS Diamond-Moretti suggest that is not a good idea
Prices of non-housing consumption goods vary, too
Variation systematically related to productivity/income
But good news! That sounds great, but what exactly should we do?<br>
slide6. MORE HIDDEN SPECIFIC CONTRIBUTIONS Implication/interpretation of Diamon-Moretti:
How to account for variation in local non-tradable prices?
This implies:<br>
slide7. MORE HIDDEN SPECIFIC CONTRIBUTIONS So we get
This regression gives very high r2 (>0.9) Real cost of living differentials are much larger than we thought! Affects how we should think about QoL differentials (delicate issue given that there are migration frictions) Need to adjust cost-of-living indices!<br>
slide8. MORE HIDDEN SPECIFIC CONTRIBUTIONS So we get
This regression gives very high r2 (>0.9) Real cost of living differentials are much larger than we thought! Affects how we should think about QoL differentials (delicate issue given that there are migration frictions) Need to adjust cost-of-living indices!<br>
slide9. ONE OPEN QUESTION What restores the spatial equilibrium? MC > MB MC < MB MC > MB MC < MB At some point, MC must exceed MB of living in bigger city City
U City
pop City
pop City
U<br>
slide10. ONE OPEN QUESTION MC always exceeds MB MC never exceeds MB Need idiosyncratic tastes, migration costs, or skill-specific amenity-related congestion forces to rationalize dispearsion of skill groups Or wage elasticities are too large – sorting on unobserables tends to reduce wage elasticity from ≈ 4% to 2% (sorting matters)<br>
slide11. THANKS<br>