Mo Van de Sompel

Abstract: 

Equilibrium sorting models treat amenities as localized; they are enjoyed equally within a geographic unit and not at all outside of it. However, many environmental amenities generate diffuse benefits across broad regions. Incorporating such regional amenities into sorting models requires solving a fundamental problem: at what rate do benefits attenuate with distance and when are they negligible? I demonstrate empirically that arbitrary decisions made by the researcher about an amenity's market extent can cause estimates of its value to vary by orders of magnitude. I address this problem by endogenizing value attenuation with the results of a recreation demand study, micro founding an index that estimates the value of a complete network of amenities to any given geography. In addition to allowing amenity value to vary continuously in space through data-disciplined parameters, this approach allows for novel policy counterfactuals and insight into the ways regional amenities affect sorting behavior. To demonstrate, I estimate a model of residential sorting across Iowa and find that households are willing to pay $5,925 for a one standard deviation improvement in lake quality-accessibility, compared to a ~$20,000 valuation in a binary cutoff model to be within 8 kilometers of a lake. I simulate the effects of creating a lake and show that interregional variation in supply elasticity allows the increased demand to be absorbed by higher elasticity locations and thus soften effects on price everywhere, raising concerns for the ability of hedonic models to fully capitalize the value of regional goods even in low-elasticity places. Finally, I show how my approach enables policy counterfactuals that traditional measures cannot support by simulating the effects of a $12 million lake cleanup project. I estimate an implied welfare change of ¢18 per person, generating a total value of about $100,000.