Measuring quality of life under spatial frictions

Gabriel M. Ahlfeldt, Fabian Bald, Duncan H.W. Roth, Tobias Seidel

Using a quantitative spatial model as a data-generating process, we explore how spatial frictions affect the measurement of quality of life. We find that under a canonical parameterization, mobility frictions - generated by idiosyncratic tastes and local ties - dominate trade frictions - generated by trade costs and non-tradable services - as a source of measurement error in the Rosen-Roback framework. This non-classical measurement error leads to a downward bias in estimates of the urban quality-of-life premium. Our application to Germany reveals that accounting for spatial frictions results in larger quality-of-life differences, different quality-of-life rankings, and an urban quality-of-life premium that exceeds the urban wage premium.

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Year of publication:	December 2024
Authors:	Ahlfeldt, Gabriel M. ; Bald, Fabian ; Roth, Duncan ; Seidel, Tobias
Publisher:	Bonn, Germany : IZA - Institute of Labor Economics
Subject:	housing \| spatial frictions \| rents \| prices \| productivity \| quality of life \| spatial equilibrium \| wages \| Lebensqualität \| Quality of life \| Theorie \| Theory \| Regionalökonomik \| Regional economics \| Produktqualität \| Product quality \| Räumliches Gleichgewichtsmodell \| Spatial equilibrium model \| Miete \| Rent \| Hedonischer Preisindex \| Hedonic price index \| Regionale Lohnstruktur \| Regional wage structure