Environ Resource Econ (2018) 69:591–608
Can Understanding Spatial Equilibria Enhance Beneﬁt
Transfers for Environmental Policy Evaluation?
Nicolai V. Kuminoff
Accepted: 1 December 2017 / Published online: 2 January 2018
© Springer Science+Business Media B.V., part of Springer Nature 2018
Abstract A conceptual model of consumer sorting in markets for housing, labor and health
care is outlined and used to make three points about how beneﬁt transfers are used for
environmental policy evaluation. First, the standard approach to assessing beneﬁts of air
quality improvements by transferring the value of a statistical life from labor market studies
embeds several untested (but testable) assumptions. Second, if the cost of an environmental
policy exceeds its capitalized effect on housing prices, then the capitalization effect is an
insufﬁcient statistic for determining whether beneﬁts exceed costs. Third, there are several
ways in which equilibrium sorting models may be usefully extended to assess distributional
welfare effects of environmental policies.
When it comes to environmental amenities, the choice of where to live is probably the single
most important choice that most people ever make. A person’s residential location inﬂuences
their exposures to air pollution, water pollution, extreme weather and hazardous waste sites.
People differ in their preferences for these amenities, in their resilience to pollution, and
in how much they are willing to pay to improve features of environmental quality. Tiebout
(1956) notion that people can effectively purchase their preferred amenity bundles by “voting
Guest Editor: V. Kerry Smith.
I am grateful to Jared Carbone and V. Kerry Smith for helpful comments and suggestions on this paper. I also
beneﬁtted from discussions with Kelly Bishop, Jonathan Ketcham, Alvin Murphy, Sophie Mathes, Nirman
Saha and participants in the December 2016 EPA Workshop on “Beneﬁt Transfer: Evaluating How Close is
Nicolai V. Kuminoff
Economics Department, Arizona State University, PO Box 879801, Tempe, AZ 85287, USA
National Bureau of Economic Research, Cambridge, MA, USA