Drs . Muth and Mills meet Dr . Tiebout : Integrating Location - Specific Amenities into Multi - Community Equilibrium

We consider the problem of integrating spatial amenities into locational equilibrium models with multiple jurisdictions. We provide sufficient conditions under which models that assume a single housing price in each community continue to apply in the presence of location-specific amenities that vary both within and across communities. If these conditions are satisfied, the models, estimation methods, and results in Epple and Sieg (1999) are valid in the presence of (potentially unobserved) location-specific amenities. We also show how to construct sufficient statistics that capture location specific spatial heterogeneity. We apply these techniques using data from the Pittsburgh metropolitan area. We find that these amenity measures capture proximity to important local employment centers as well as heterogeneity in school quality within a given school district. (JEL Classification: C51, H31, R12) ∗We would like to thank Gilles Duranton, Patrick Bayer, Markus Berliant, an anonymous referee, and participants of the 50th Anniversary Conferences of the JRS held at the Federal Reserve Bank of New York for comments and suggestions. Financial support for this research is provided by the NSF SBR-0617844.