DP15594 Quality of life in a dynamic spatial model

Author(s): Gabriel Ahlfeldt, Fabrian Bald, Duncan Roth, Tobias Seidel
Publication Date: December 2020
Keyword(s): COVID, Dynamic, Housing, migration, pollution, productivity, Quality of life, rents, spatial equilibrium, wages
JEL(s): J2, J3, R2, R3, R5
Programme Areas: Labour Economics, International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=15594

We develop a dynamic spatial model in which heterogeneous workers are imperfectly mobile and forward-looking and yet all structural fundamentals can be inverted without assuming that the economy is in a stationary spatial equilibrium. Exploiting this novel feature of the model, we show that the canonical spatial equilibrium framework understates spatial quality-of-life differentials, the urban quality-of-life premium and the value of local non-marketed goods. Unlike the canonical spatial equilibrium framework, the model quantitatively accounts for local welfare effects that motivate many place-based policies seeking to improve quality of life.