Date of Award

8-2011

Document Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Legacy Department

Applied Economics

Advisor

Mroz, Thomas A

Committee Member

Benjamin , Daniel K

Committee Member

Warner , John T

Abstract

My dissertation addresses two important individual level decisions: the choice of location made by young college graduates and the demand for owner-occupied housing. Young college graduates are an important component of the skilled labor force and one of the population groups with the highest risk of relocation. As a result, they are often targeted by state level policies aimed at attracting or retaining them in the labor force. My research reveals an important factor that determines the location chosen by young college graduates at the beginning of their career, and therefore informs policy makers on novel ways to make a location more attractive for this group. The second part of my dissertation addresses the empirical analysis of the demand for housing services. My research attempts to explain the large differences among the estimates of the slope of the demand for housing services found in the literature. The second objective is to assess the existence of an asset appreciation effect of the price of owner-occupied housing services on the quantity demanded of owner-occupied housing services, which may explain recent price bubbles in the U.S. housing market.
In the first chapter I develop and estimate a dynamic model of location choice for young college graduates. My theoretical model predicts that individuals who are uncertain about their earnings prospects in different locations will prefer to move to the place with the highest earnings variance, all else equal. This result follows from the dynamic nature of the location choice decision: if earnings in the first location turn out unsatisfactory, the individual can always move to a location with better prospects. Mobility limits the loss of earnings from a low realization of earnings to just oneperiod. I test the theoretical implications using a nested logit model that allows for over one hundred location choices. Using a large sample of young college graduates from the 2000 US Census, I find a higher earnings variance increases the probability of choosing a location with low to moderate earnings variance. Increasing the earnings variance for locations with high earnings variance may increase or decrease their choice probability, depending on the specific combination of mean and variance of their earnings distribution. Estimates from a random parameters logit model suggest that preferences for mean earnings and earnings variance show very little variation across individuals in my sample.
In the second chapter I take a semi-non-parametric approach to the estimation of the demand for housing services. Previous studies have found very different estimates for the slope of the demand for owner-occupied housing services. These differences may be an artifact of restrictive parametric methods used to estimate the hedonic functions in the first step of the analysis. In this paper I estimate the demand for owner-occupied housing services using the semi-non-parametric Fourier series estimator to fit the hedonic price functions, and compare the results to some of the parametric methods of estimation used in the literature. I find that changing the estimation method of the hedonic functions leads to different estimates for the slope of the demand, but the estimation method alone cannot explain the large differences found in the literature. Further evidence suggests that the Box-Cox model used in the literature may be overly restrictive for estimating housing hedonic functions. The second objective of this paper is to assess the existence of an asset appreciation effect of owner-occupied housing price on owner-occupied housing consumption, in the light of the recent finding in the literature of a positive effect of price on the quantity demanded of owner-occupied housing services. This may again be the result of using a restrictive parametric method in the first step or it may be an effect specific to some localized markets. Using data on multiple housing markets, I find evidence of a negative effect of price on quantity, under the assumption of homogenous preferences across housing markets. When I relax the homogeneity assumption and allow for state specific effects, I find evidence consistent with an asset appreciation effect in about half of the U.S. states.

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Economics Commons

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