Household Life Cycle Location Choices and the Dynamics of Metropolitan Communities

Carnegie Mellon University, Pittsburgh PA

Investigators

Abstract

Institution: Carnegie Mellon University NSF Program: ECONOMICS Principal Investigator: Epple, Dennis Title: Household Life Cycle Location Choices and the Dynamics of Metropolitan Communities. ABSTRACT Understanding location choices of households and the dynamics of metropolitan structure are important issues in economic research as well as urban policy. The proposed research will develop a dynamic model of household life cycle location choices. Incentives for households to change locations in a metropolitan area vary over the life cycle. Households with school-aged children will be attracted to locations with good quality public schools, while those without children may not be so inclined. Departure of children from the household, and the associated decrease in housing need reinforces the incentives for relocation. The dynamic equilibrium model has the potential to improve understanding both of community characteristics and of housing markets. Modeling the life cycle dynamics of households and the associated dynamics of community populations will also improve our understanding of collective choices of local public policies made within communities. The model incorporates the following five household characteristics that that a life cycle model of household mobility must capture: income, family size, moving cost, age, and housing tenure. Empirical testing of the model entails developing a computational counterpart to the general equilibrium model. The empirical analysis will be based on cross-sectional and panel data on communities to study cross-sectional differences in the demographic composition of communities and changes in community demographic composition over time. Census data on intra-metropolitan population migration will also be used to investigate migration of households of varying stages of the life-cycle and varying incomes and family sizes. This research makes several significant contributions to economic science. This research develops and estimates a general equilibrium model of community choices to study determination of local public policies. The general equilibrium framework is particularly important for the study of policy issues that change the equilibrium composition of communities and the resulting housing prices. Among the key contributions of the research is providing a detailed analysis of collective choice mechanisms via majority rule in a dynamic framework with multiple communities. This research will provide the first estimated dynamic model of community choice and is thus on the frontier of integrating theory, computation, and estimation in urban economics. This research has several broader impacts. The research studies local public policies and investigates the effects of housing market imperfections and moving costs on access to primary and secondary education in the context of an aging US population. This demographic change coupled with household relocation decisions has the potential to alter significantly the composition of communities, the expenditure patterns of communities, and access to economic opportunities. The result of this research provides a foundation for understanding the consequences of such changes and evaluating public policies. The ability to distinguish among heterogeneous households and their contribution to the spatial equilibrium promises to provide a significant advance in understanding and quantifying the distribution of gains and losses associated with public policies. The research findings will be widely disseminated to promote broad access to the results. Ph.D. students will participate in the research, thus contributing to their training.