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A Dynamic Equilibrium Model of Commuting, Residential and Work Location Choices

With Christian Langholz Carstensen, Fedor Iskhakov, John Rust and Bertel Schjerning

We present a dynamic equilibrium model of joint residential and work location in which commuting costs depend on the distance between work and home, and house prices equate supply and demand for housing. We estimate the model using Danish register data for households in Greater Copenhagen area. We then predict the effects of increasing supply of residential housing on house rental prices, job mobility, residential sorting, commuting and welfare. In the second counterfactual  simulation we show differential impact of telecommuting which implies substantial welfare gains and increased  labor supply on the margin by educated workers whereas low educated workers benefit only slightly from lower housing prices in urban areas caused by out migration.

Connect-The-Dots: Identification of Heterogeneous MWTP Functions under Time-Varying Preferences

Models based on residential location choice have become commonplace in the non-market valuation literature. Rosen (1974) provides a utility-theoretic basis for hedonic models to be used to measure the welfare consequences of changes in local public goods and amenities. However, his proposed two-stage estimation procedure embodies a number of difficult econometric problems that have become the focus of research for decades. My paper builds upon the "inversion" approach suggested by Bajari and Benkard (2005) and the buyer-panel extension of that work proposed by Bishop and Timmins (2018). The latter paper shows how data on repeat purchases can be used to flexibly recover preferences with rich individual heterogeneity, but the method is unable to deal well with time-varying individual attributes that might prompt residential location changes. I expand that approach to deal with any number of time-varying individual attributes including income, family structure and other drivers of housing choice. I apply that method to detailed longitudinal data from the Danish census, and use the estimates to value non-marginal changes in violent crime rates. I demonstrate a significant and policy-relevant bias from failing to properly account for the endogeneity problems in Rosen (1974). 


Dynamic Human Capital in General Equilibrium

With Christian Langholz Carstensen

The interest in understanding and modeling individuals' human capital investments and occupational decisions in a dynamic setting dates back to Keane and Wolpin (1997). However, modeling such decisions in a general equilibrium setting is more sparse and the literature has mainly focused on the choice between pursuing a college degree or working. In this paper we develop a model of field-specific choice of education, labor market supply and industry choice. We expand the often narrow focus on the high school/academic track to the entire Danish education system including the vocational track. This system is hierarchical and we account for this structure to provide counterfactual scenarios from an empirically relevant model that enables studying the consequences of e.g. changing the admission rates for various study degrees depending on labor market outcomes or the implications for the supply of skills and labor market equilibrium wages of the suggested limited access to student grants at master's university degrees. In addition, by modeling the income tax scheme, we can study the dynamic effect of public expenditure on various fields of education.

A Model of Couples’ Joint Home and Work Decisions and the Intra-Household Allocation of Commuting

When analysing locations of job and residence as well as commuting it is important to consider that dual-earner households face a co-location trade-off when they live together but may choose to work in different places. Until now, the literature has mainly modelled households as single-person decision makers, but using high-quality Danish administrative data I am able to link household members and provide descriptive evidence that the tendency to  split commuting distance more or less equally differs geographically. In particular, I investigate how intra-household differences in commute distance between men and women may affect the gender wage gap which also exhibits spatial variation. To model the intra-household bargaining over locations, I combine the literature on dynamic residential-work location choice and the collective model literature to build a collective dynamic discrete choice model.