The Marginal Cost of Mortality Risk Reduction: Evidence from Housing Markets (2021) [Link NBER]
with Kelly Bishop, Nicolai Kuminoff, and Alvin Murphy
Abstract. 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 Dynamics of Residential Sorting and Health: Implications of Climate Change in the U.S. (2021) [PDF]
Abstract. 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.
The Big City Wage Premium: Labor Market Power and Skill Sorting (2020)
with John Morehouse
Abstract. Wages between skilled and unskilled workers have long been diverging, and income inequality has been on the rise for many decades. Furthermore, high-skilled labor has sorted at much higher rates into larger cities than low-skilled labor over the same time frame. We first update the findings of a large literature which assumes that larger cities have generally more competitive labor markets. We combine these facts to show how the divergence between unskilled and skilled wage growth has been due to endogenous sorting. More specifically, we document that high-skilled labor has endogenously sorted into more competitive labor markets. As a result, high-skilled labor gets paid closer to their marginal revenue product, whereas low-skilled workers face larger wage markdowns. We develop and estimate a general equilibrium model of worker sorting in which labor markets are monopsonistically competitive. Preliminary evidence suggests that local labor market power leads to large losses in welfare relative to a fully competitive economy.
The Illness-Poverty-Amenity Trap (2019) [Slides]
with Nicolai Kuminoff and Jonathan Ketcham
Abstract. 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 (PM2.5); 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 PM2.5 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 PM2.5 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.
Work in Progress
Migration Choices in Response to Environmental Disasters
with Danae Hernández Cortés