Urban Social and Economic Research Workshop | The Role of Environmental Amenities in the Urban Economy: Evidence From a Spatial General Equilibrium Approach
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Environmental amenities play an important role in residential location decisions, which in turn affect the concentration of consumption and production activities. In this paper, I develop and estimate a spatial general equilibrium model to examine how environmental amenities affect the spatial distribution of urban economic activities and their welfare consequences. The model characterizes household location and consumption decisions, production decisions, as well as urban agglomeration and dispersion forces. The empirical analysis leverages a natural experiment of pollution monitoring and information disclosure program and recovers key underlying parameters using fine-scale travel data on commuting and consumption trips and environmental amenities. The analysis shows that job access, residential amenities, and consumption access account for 49%, 30% and 21% of overall attractiveness of a residential location, respectively. A one-standard-deviation change in air quality leads to a 0.24-standard-deviation change in individuals’ perceived amenity level. Counterfactual simulations suggest an 8.4% welfare gain if individuals were to fully incorporate environmental amenities into their decisions, compared to the scenario of not incorporating their impacts. The welfare difference is driven by changes in residential and workplace locations, as well as consumption and production decisions.
Deyu Rao's research lies at the intersection of environmental and urban economics, with a strong focus on emerging markets such as China. He employs advanced spatial and econometric models to investigate how environmental factors - including air quality, urban amenities, and climate change - impact economic activity and social welfare. His work highlights the crucial role of environmental amenities in influencing residential, production, and consumption decisions, demonstrating how well-crafted economic and environmental policies can drive resilience and adaptation to environmental challenges. By integrating comprehensive data analysis with rigorous modeling, Rao's research offers valuable insights for policymakers aiming to tackle the complex economic and environmental issues facing rapidly developing regions.
About the Urban Social and Economic Research Workshop:
The UGOD Urban Social and Economics Research Workshop is a student-initiated forum at HKUST (GZ) that showcases frontier research in urban economics and the social sciences. We aim to cultivate a vibrant, inclusive, and collaborative community, strengthen interdisciplinary dialogue, and foster the humanities and social sciences research culture on campus.