Two Essays on Valuing Climate Amenities

Abstract

Chapter 2: I 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. I use the estimated trade-off among wages, housing costs, and climate amenities to value changes in mean winter and summer temperatures. I find that households sort among MSAs as a result of heterogeneous tastes for winter and summer temperatures. Preferences for winter and summer temperatures 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. I use my results to value changes in winter and summer temperatures 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 percent of income to avoid the B1 scenario and 2.4 percent of income to avoid the A2 scenario. Chapter 3: I examine differences between the two principal approaches used to estimate the value of urban amenities: the hedonic model, in which amenities are capitalized into wages and housing prices, and the discrete model of household location choices, which is derived from a random utility framework. Several empirical studies have noted that the discrete choice approach can yield much larger estimates of amenity values than the hedonic approach. Using 2000 PUMS census data, I investigate these differences and their possible causes by estimating how U.S. households value various aspects of climate. I estimate both hedonic and discrete choice models, allowing for heterogeneity in tastes for mean winter and summer temperature. In line with the previous literature, I find that discrete choice models consistently yield mean marginal willingness to pay estimates for climate amenities that significantly exceed those implied by hedonic estimates. Additionally, I find that the household sorting patterns implied by the two models are very different. For example, the discrete choice model suggests that households with the greatest preference for warmer winter temperature tend to locate in cities with the mildest winters, while the hedonic models do not. I show that explanations for these differences advanced by the previous literature, such as differences in mobility assumptions between the two approaches, cannot fully explain my findings, and I suggest an alternative theory that deserve further investigation.