New NBER Working Paper on China's Major Cities
Working with Siqi Zheng and Hongyu Liu of Tsinghua Univ. in Beijing, I have managed to write a new NBER Working Paper on China's Major cities. Starting in the late 1970s with the compensating differentials research of Sherwin Rosen and Jennifer Roback, many urban economists have used U.S data to estimate the implicit prices for non-market goods (i.e air pollution, climate). Intuitively, why are home prices higher in Los Angeles than Detroit by roughly 10 times? You might claim that it is productivity differentials but I don't believe this. I believe the quality of life is higher in LA and this is capitalized into city price differentials. If migration costs are low across cities, there can't be the same housing prices in Detroit and LA because everyone would move from Detroit to LA (arbitrage).
While researchers have studied the U.S too much, there has not been enough research on measuring compensating differentials in a booming LDC such as China. Using unique data sets, this is what we do in this new paper.
Here are our main findings;
1. Across, cities --- ambient air pollution is capitalized into home prices and this price premium appears to be rising over time.
2. Cities with more inelastic housing supply experience greater house price appreciation when local demand for housing increases (Glaeser and Gyourko are right in China)
3. Cities experiencing FDI inflows have lower air pollution. This will surprise the pollution havens crew. One possible explanation for this finding is a greener technique effect.
4. We find evidence of a within sample Environmental Kuznets Curve. Since we only have 35 cities and observe each for 6 years, we estimate a simple air pollution production function. Bigger cities have a higher pollution levels. This population elasticity of .3 to .4 is very similar to U.S estimates. Regressing PM10 on a quadratic in city per-capita income, we find a within sample turning point such that all else equal, richer cities have lower PM10 levels.
Switching gears, here is Marty's work on fat tails and losses from climate change.
Weitzman papers on fat tails and losses from climate change.
While researchers have studied the U.S too much, there has not been enough research on measuring compensating differentials in a booming LDC such as China. Using unique data sets, this is what we do in this new paper.
Here are our main findings;
1. Across, cities --- ambient air pollution is capitalized into home prices and this price premium appears to be rising over time.
2. Cities with more inelastic housing supply experience greater house price appreciation when local demand for housing increases (Glaeser and Gyourko are right in China)
3. Cities experiencing FDI inflows have lower air pollution. This will surprise the pollution havens crew. One possible explanation for this finding is a greener technique effect.
4. We find evidence of a within sample Environmental Kuznets Curve. Since we only have 35 cities and observe each for 6 years, we estimate a simple air pollution production function. Bigger cities have a higher pollution levels. This population elasticity of .3 to .4 is very similar to U.S estimates. Regressing PM10 on a quadratic in city per-capita income, we find a within sample turning point such that all else equal, richer cities have lower PM10 levels.
Switching gears, here is Marty's work on fat tails and losses from climate change.
Weitzman papers on fat tails and losses from climate change.
posted by Matthew Kahn at 8:57 AM
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