Inter-city Wage Differentials and the Value of Air Quality
This paper proposes a method of valuing air quality based on differences in wages among cities. Using an urban location model it is shown that the supply of labor to any city increases with the real wage and with air quality in the business district. If individuals have log-linear utility functions then the value at home and at work of an equal proportionate reduction in pollution throughout the city can be computed from the coefficients of the labor supply function. The computations are illustrated for one-digit labor supply functions estimated from 1970 Census data.