Valuation of Local Public Goods: Migration as Revealed Preference for Place

Résumé

We develop a residential sorting model based on a panel of county-to-county migration flows to estimate the marginal valuation of air pollution. Our approach exploits annual crosssectional variation in migration flows to estimate mean location utilities at the county level, while flexibly controlling for moving costs. The mean utilities provide a time-varying, county level index of residential attractiveness. We then use panel variation in county characteristics to decompose mean utility into observable and unobservable components using county fixed effects, which allows us to estimate the marginal value of local amenities. In our application to air pollution, we use an instrumental variables approach to provide robust evidence that the concentration of fine particulate matter (PM 2.5) is a disamenity that negatively impacts location decisions. In our preferred specification, we find that the median household is willing to forgo 2.65 percent of annual income for a 1 mg/m3 decrease in fine particulates.