Climate Change Impacts on Household Location Choices in the U.s. and Economic Consequences

Open Access
Fan, Qin
Graduate Program:
Agricultural Economics
Doctor of Philosophy
Document Type:
Date of Defense:
May 06, 2013
Committee Members:
  • Karen Ann Fisher Vanden, Dissertation Advisor/Co-Advisor
  • Karen Ann Fisher Vanden, Committee Chair/Co-Chair
  • James Samuel Shortle, Committee Member
  • Stephan J Goetz, Committee Member
  • Chris Eliot Forest, Committee Member
  • H Allen Klaiber, Special Member
  • Climate Change
  • Locational Equilibrium
  • Tiebout Sorting
  • Migration Costs
  • Endogenous Wages
  • Regional Economic Impacts
This research starts with an empirical analysis on household location choices under changes in climate extremes. It follows with a modeling component that simulates the welfare impacts of climate change on US households by linking a random utility model (RUM) with a computable general equilibrium (CGE) model. Linking these models enables feedbacks resulting from climate change-induced migration by simultaneously updating regional labor supply in the CGE model while changing labor wages in the empirical RUM model. A residential sorting model is used to estimate household location choices and to reveal household marginal willingness to pay (MWTP) to reduce frequency of extreme weather in the United States. A two-stage random utility model (RUM) is used for estimation. The first-stage discrete choice model employs a multinomial logit specification to recover heterogeneous parameters associated with metropolitan statistical area (MSA) specific variables, migration costs, and the mean indirect utility of each MSA. The second stage of this model decomposes the mean indirect utility obtained from the first stage into its MSA-specific attributes controlling for unobservables using region fixed effects and an instrumental variable (IV). The estimated coefficients obtained from the sorting model are compared to results from a conventional wage-hedonic model to evaluate the relative performance of these two models. Additionally, a recursive dynamic inter-regional computable general equilibrium (CGE) model is developed to simulate regional economic impacts. The model is calibrated to the IMPLAN 2010 state-level social accounting matrices (SAMs) for the U.S. and it solves at 1-year steps from 2010 to 2065 across 30 industrial sectors and 5 different regions in the US. An important innovation of this research is the coupling of the RUM with the CGE model to endogenize labor wages. Coupling these two models through the labor market influences household location choices in the RUM and allows for changes in the industrial size and sectoral composition of regional economies in the CGE model. This approach allows for both preference heterogeneity and sectoral interactions in the regional economies based on an iterative process. In the empirical component, we find that extreme temperatures and extreme precipitation reduce utility. People’s preferences for temperature extremes are heterogeneous. The climate of one’s place of birth and demographic characteristics such as age, climate of birth region, and educational attainment are significant factors that lead to preference heterogeneity. We also find that the conventional wage-hedonic model underestimates values of amenities. In the modeling component, we find that population share in the Northeast increases due to an moderate increase in frequency of warm weather reflected in the climate change scenario used in the analysis, while population share in the Midwest drops due to significant increases in extreme weather days. After considering the feedback from the labor market, population share in the West increases but shares in the Northeast, Midwest, and South drop relative to the business as usual (BAU) scenario without climate change. While climate amenity and job opportunities are both important factors in households’ location decisions, wage effects tend to dominate climate effects on location choices for the working-age population, and retirees place a higher value on climate amenities compared to workers. In the high-emission A2 scenario, the percentage decrease in gross regional product (GRP) is 1.66% for the Northeast, 3.20% for the Midwest, 2.30% for the South, and 0.68% for California while comparing the climate change-induced migration scenario to the BAU scenario in 2065. In contrast, GRP in the West increases by 12.93% in the climate change-induced migration scenario relative to the business as usual (BAU) scenario. Our findings suggest that different mitigating policies should target different regions based on heterogeneous regional impacts. In addition, we find that endogenizing labor wages dampens regional economic impacts from climate change-induced migration. The results suggest that ignoring feedbacks from the equilibrium labor market will overstate the economic impacts of climate-induced migration.