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CEP discussion paper
Quality of life in a dynamic spatial model
Gabriel M. Ahlfeldt, Fabian Bald, Duncan Roth and Tobias Seidel
December 2020
Paper No' CEPDP1736:
Full Paper (pdf)

JEL Classification: J2; J3; R2; R3; R5

Tags: covid-19; dynamic; housing; migration; rents; pollution; productivity; spatial equilibrium; quality of life; wages; welfare; economic geography; productivity; wages; wellbeing

We develop a dynamic spatial model in which heterogeneous workers are imperfectly mobile and forward-looking and yet all structural fundamentals can be inverted without assuming that the economy is in a stationary spatial equilibrium. Exploiting this novel feature of the model, we show that the canonical spatial equilibrium framework understates spatial quality of-life differentials, the urban quality-of-life premium and the value of local non-marketed goods. Unlike the canonical spatial equilibrium framework, the model quantitatively accounts for local welfare effects that motivate many place-based policies seeking to improve quality of life.