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date: 02 July 2022

Abstract and Keywords

Equilibrium sorting models of household location choice provide a framework for understanding the interactions among people, markets, and spatially delineated amenities. Sorting models begin by characterizing the spatial landscape and household preferences. Utility-maximizing location choices are expressed as a function of the characteristics of people, houses, and communities, as well as of structural parameters describing latent preferences. This relationship is then inverted, using the logic of revealed preference to characterize the distribution of household preferences for amenities. Estimation results are used to calculate the willingness to pay for changes in landscape amenities and to predict how people and markets will adjust to counterfactual policies. This chapter aims to make sorting models accessible to economists who are new to the literature and to clarify their connection to the reduced form models of hedonic equilibria that have traditionally been used for “back of the envelope” policy analysis.

Keywords: equilibrium sorting, hedonic, willingness to pay, policy analysis, amenities

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