Thursday, January 7, 2016

Household Location Decisions and the Value of Climate Amenities

We value climate amenities by estimating a discrete location choice model for U.S. households. The utility of each Metropolitan Statistical Area (MSA) depends on location-specific amenities, earnings opportunities, housing costs, and the cost of moving to the MSA from the household head’s birthplace. We use the estimated trade-off between wages, housing costs and climate amenities to value changes in mean winter and summer temperatures. We find that households sort among MSAs due to heterogeneous tastes for winter and summer temperature. Preferences for winter and summer temperature are negatively correlated: households that prefer milder winters, on average, prefer cooler summers and households that prefer colder winters prefer warmer summers. Households in the Midwest region, on average, have lower marginal willingness to pay to increase winter and reduce summer temperatures than households in the Pacific and South Atlantic census divisions. We use our results to value changes in winter and summer temperature for the period 2020 to 2050 under the B1 (climate-friendly) and A2 (more extreme) climate scenarios. On average, households are willing to pay 1% of income to avoid the B1 scenario and 2.4% of income to avoid the A2 scenario.

by Paramita Sinha and Maureen L. Cropper
National Bureau of Economic Research (NBER)
NBER Working Paper No. 21826; Issued in December 2015

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