Estimating Households’ Preferences for Environmental Amenities Using Equilibrium Models of Local Jurisdictions
| Author | JunJie Wu,Seong‐Hoon Cho |
| Published date | 01 May 2003 |
| Date | 01 May 2003 |
| DOI | http://doi.org/10.1111/1467-9485.5002005 |
ESTIMATING HOUSEHOLDS’
PREFERENCES FOR ENVIRONMENTAL
AMENITIES USING EQUILIBRIUM
MODELS OF LOCAL JURISDICTIONS
JunJie Wu
n
and Seong-Hoon Cho
nn
Abstract
Much research has focused on the development of equilibrium models of local
jurisdictions to analyze the formation of social structures and community
characteristics. These models, however, have been subjected to little empirical
testing. In a recent paper, Epple and Sieg (1999) developed a new method for
estimating equilibrium models of local jurisdictions, but they did not include
environmental amenities in their empirical application. In this paper, we extend and
apply this new method to estimate households’ preferences for alternative
environmental amenities in the Portland Oregon metropolitan area. We show that
estimated structural parameters would be biased if environmental amenities are
ignored. By including amenities into the structural models of local jurisdictions,
households’ preferences for alternative environmental amenities and public goods
are estimated. Parameter values underlying households’ residential choices are
uncovered. Many of the empirical regularities observed in the data are replicated
(JEL R1, R2, Q2).
I Introduct ion
Nearly four of five Americans live in the 273 metropolitan regions in the United
States (Daniels, 1999). These regions include a central city of at least fifty
thousand people, suburbs around the central city, suburbs that have grown into
‘edge cities,’ and a fringe of countryside. In 1993, the United States Office of
Budget and Management classified more than one-quarter of the nation’s 3,041
counties as belonging to a metropolitan area (Daniels, 1999). The Census
Bureau estimates that America will add 34 million people between 1996 and the
year 2010. Most of this growth will occur in metropolitan areas. As population
and economic growth pressure push outward to suburbs, managing land use in
metropolitan areas will become more complex and challenging. Understanding
n
Oregon State University
nn
University of Georgia
Scottish Journal of Political Economy, Vol. 50, No. 2, May 2003
rScottish Economic Society 2003, Published by Blackwell Publishing, 9600 Garsington Road, Oxford OX4 2DQ, UK
and 350 Main Street, Malden, MA 02148, USA
189
households’ residential choices in a system of local jurisdictions is necessary for
designing efficient growth management strategies in metropolitan areas.
Much research has focused on the development of equilibrium models of
local jurisdictions to understand the formation of local jurisdictions and
community characteristics.
1
These models, however, have been subjected to little
empirical testing. In a recent paper, Epple and Sieg (1999) developed a new
method for estimating spatial equilibrium models of local jurisdictions. They
applied the method to communities in Boston with two local public goods
(school quality and crime rate) but ignored environmental amenities. They point
out that further research is needed to address the question how robust the
method is to different data sets from different metropolitan areas. They also
suggest that extending vectors of public-good provision to include environ-
mental amenities is interesting and important from a policy perspective. This
paper extends Epple and Sieg (1999) in both aspects.
Specifically, in this paper we apply the new method developed by Epple and
Sieg (1999) to communities in the Portland Oregon metropolitan area with an
extension of public-good provision to include environmental amenities. This
extension is important because to a large extent the spatial patterns of land
development and community characteristics are determined by the spatial
distribution of amenities (Wu, 2002). We show that the parameter estimates
would be biased if environmental amenities are ignored. By including amenities
in the estimation of structural equilibrium models of local jurisdictions,
households’ preferences for alternative environmental amenities and public
goods are revealed. Parameter values underlying households’ residential choices
are uncovered. Many of the empirical regularities observed in the data are
replicated. Although hedonic studies consistently reveal an inverse relationship
between housing prices and distance to amenities (see, e.g., Smith, 1978;
Pogodzinski, 1988; Palmquist, 1992; Sivitanidou, 1995; Leggett and Bockstael,
2000; Tyrva
¨inen and Miettinen, 2000), few studies have measured the house-
holds’ preferences for environmental amenities directly from a structural
equilibrium model.
In the next section we discuss the distribution of households across
communities implied by equilibrium models of local jurisdictions. The new
methods developed by Epple and Sieg (1999) for estimating equilibrium models
of local jurisdictions is discussed in Section III. Section IV discusses the data
used in our empirical application. Section V presents empirical results. Section
VI draws some conclusions.
1
Local jurisdictions are the territories within which local governments such as townships or
municipalities exercise their authority in the United States. Local governments build and
maintain streets, collect garbage, provides fire and police protection and other local public
services. Local public expenditures are supported by local taxes on properties, income and retail
sales. Local governments are creatures of state governments in the sense that localities derive
their taxing and spending powers from the states. There is considerable variation across states in
the amount of power delegated to local governments in the United States (see, e.g., Part IV of
O’Sullivan, 2000).
JUNJIE WU AND SEONG-HOON CHO190
rScottish Economic Society 2003
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