Research

Working Papers

Residential Sorting, Local Environments, and Human Capital

Accepted at RSUE, with Nicolai Kuminoff

We consider the implications of unifying the distinct literatures on residential sorting and human capital dynamics. We argue that integrating insights from recent work in both areas has important implications for future research at the intersection of environmental and urban economics. To focus attention on these implications, we summarize stylized facts from recent empirical work on residential sorting and on the effects of exposures to environmental factors on human capital. Then we outline a simple overlapping generations model that reproduces these stylized facts and use it to guide our discussion on directions for future research.

The Marginal Cost of Mortality Risk Reduction: Evidence from Housing Markets [Link NBER]

Accepted at JUE, with Kelly Bishop, Nicolai Kuminoff, and Alvin Murphy

We provide the first evidence that spatial variation in all-cause mortality risk is capitalized into US housing prices. Using a hedonic framework, we recover the annual implicit cost of a 0.1 percentage-point reduction in mortality risk among older Americans and find that this figure is both relatively low and decreasing in age, from $1,346 for a 67 year old to $246 for an 87 year old. These estimates are one-fifth of the size of comparable estimates found in the labor market, suggesting that the housing market provides an alternative, substantially cheaper channel to reducing mortality risk.

The Effects of Renewable Energy Projects on Employment: Evidence from Brazil [Link SSRN]

R&R at JAERE, with Danae Hernández Cortés

This paper studies the employment impacts of renewable energy projects in Brazil. Between 2006 and 2017, Brazil’s solar capacity grew from 0.001 GW to 1.01 GW, and wind capacity grew from 0.23 GW to 12.4 GW. Using detailed employment information from the universe of formal workers in Brazil, we analyze how the development of renewable energy projects impacts local economies. We find that when new wind energy projects come online, the number of firms in a municipality increases by 14.84 percent and total employment in a municipality increases by 15.95 percent. Employment in occupations related to electricity, construction, and transportation increase by even more. The employment increases appear to stem from growth of existing firms and increased entry of new firms. The findings are mirrored in municipal sales tax revenue and income tax revenue. Our results are not explained by electricity grid expansions. Notably, we find larger effects in areas with high shares of informality.

The Dynamics of Residential Sorting and Health: Implications of Climate Change in the U.S. [PDF]

R&R at IER

This study combines the seminal ideas of Tiebout (1956) and Grossman (1972) to develop a new empirical framework for evaluating treatments that have spatially differentiated effects on health and environmental quality. Individuals are modeled as choosing a residential location based on their heterogeneous preferences for local public goods and their beliefs about how their location choices will affect the future evolution of their health. Thus, the choice of residential location constitutes a health investment, in addition to providing current and future consumption values of local public goods. To estimate the dynamic model of location choice, I employ a sample of 4.5 million seniors from 2001-2013. Seniors’ preferences for public goods, private goods, and their rates of intertemporal substitution between health and consumption are allowed to vary flexibly with age and health. Results suggest that seniors’ willingness-to-pay (WTP) for warmer winters is uniformly positive, while WTP to avoid warmer summers varies with age and health. Their average annual WTP to avoid future climate change in the U.S. predicted under a “business as usual” scenario for global carbon emissions ranges from $1,431 for older, sicker groups who are more vulnerable to climate change’s negative effects on health to -$3,813 for younger, healthier groups, who value warmer winters and are relatively resilient and mobile.

Labor Market Power in a Spatial Equilibrium

with Claudio Luccioletti and John Morehouse

Many spatial sorting models assume that local labor markets are competitive. We assess to what extent this assumption is justified, or whether there is systematic heterogeneity in competitiveness across space. We use a discrete choice framework to model the spatial sorting of workers, and couple it with spatially distant employers who compete for labor strategically. Employers have ‘imperfect’ market power because re-location is costly for workers and because other firms in the same local labor market engage in wage competition. We use the model to estimate wage markdowns that are spatially heterogeneous and differ by educational attainment status of the workers.

The Effects of Natural Disasters on Labor Allocation: Evidence from Brazil

with Danae Hernández Cortés

Natural disasters are increasing in frequency and intensity across the globe, having considerable economic consequences for affected populations. Among these effects, natural disasters might induce substantial migration flows and labor reallocation across regions. This study examines how environmental disasters affect individual labor market outcomes and migration decisions in Brazil. Using a unique dataset that contains a detailed history of individual’s labor outcomes, we examine individual labor responses to natural disasters. Leveraging a long history of disasters and geographically referenced data, we are able to examine heterogeneous responses to natural disasters for affected populations, which allows us to identify which disasters are more likely to induce labor reallocation and migration decisions. Moreover, this detailed information on individual demographic characteristics allows us to examine differential impacts across demographic groups and to shed light on heterogeneity in migration responses.

The Illness-Poverty-Amenity Trap [Slides]

with Nicolai Kuminoff and Jonathan Ketcham

This study investigates the interaction between residential sorting and health among senior citizens in the United States. We extend Tiebout’s (1956) sorting model to recognize that health may affect the rate at which retirees are willing to trade public and private goods. Local public goods such as air pollution and climate may also affect the rate at which health declines late in life. A single-crossing restriction on preferences implies that lower income seniors will choose to live in lower quality neighborhoods, become sicker sooner, and spend more on health care. We test these predictions using a 10% random panel sample of Medicare beneficiaries that includes more than 7 million seniors from 2001-2013. Regression analysis reveals that poorer seniors tend to live in neighborhoods that expose them to higher concentrations of fine particulate air pollution (PM_2.5); they are diagnosed with more chronic medical conditions; they spend more on health care; and they die sooner. We also find that medical spending and migration rates increase following health shocks that are associated with elevated PM_2.5 exposures, such as cancers, hip fractures, strokes, heart attacks, and dementia. Finally, we observe that when lower-income seniors move, they tend to move to more polluted neighborhoods. The average move increases the PM_2.5 exposure gap between high-income and low-income seniors by 17% of the gap that existed in 2001. Overall, our findings are suggestive of an “illness-poverty-amenity trap” in which sicker, poorer seniors are exposed to worse environmental conditions that degrade their health, increase their medical spending, and induce them to move to neighborhoods that are less expensive and more polluted. This sorting process generates pollution exposure gaps by age and health that parallel the gaps by race and income that have been the primary focus of environmental justice literature. Our findings also suggest that policies targeting environmental quality may have important fiscal implications for Medicare programs because seniors are the fastest growing age group in the U.S. and among the most vulnerable to air pollution and heat stress.