Compensating differentials and evolution of the quality-of-life among U.S. states

This paper provides the first application of the compensating differential paradigm to the evaluation of the extent and sources of evolution in quality-of-life among U.S. states. In addition to providing estimates of quality-of-life rankings for U.S. states over the 1981-1990 period, we use estimated implicit prices on place-specific amenities to calculate the contributions of various factors to evolution in the quality-of-life. Our findings indicate that the quality-of-life rankings are relatively stable across model specifications and over time for certain poorly ranked, densely-populated midwestern and eastern industrial states and for many high quality-of-life rural western states. However, we also find evidence of a substantial deterioration in the quality-of-life in some states that experienced rapid population growth during the decade, with reduced spending on highways and increased traffic congestion and air pollution accounting for the bulk of the deterioration in quality of life in these states. In contrast, states exhibiting an improvement in the quality-of-life rankings ascended for a variety of reasons, including reduced state and local government income tax burdens, improved air quality, increased highway spending, and reduced commute times.