Valuing laws as local amenities

Harvard Law Review

Volumn 121, Issue 5, 2008, Pages 1273-1331

  Malani, Anup ^a  

^a UNIVERSITY OF CHICAGO   (United States)

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EID: 41549129509     PISSN: 0017811X     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (168)

1. To be clear, I contend that the value of a law -federal, state, or local -is the sum of the increase in housing prices and the magnitude (or absolute value) of the decrease in wages. So, for example, if a law increases housing prices by Si and reduces wages by $1, then the total value of the law is $2. Moreover, by aggregate value of land I mean the total value of the land available for residential use -that is, the quantity of land available for residential use multiplied by the price of that land. Because the supply of housing may change in the long run, the long-run value of a law depends on how much it increases the aggregate value of residential land.
2. Obviously, if the law reduces housing prices and raises wages or reduces aggregate land values, it is a public bad. But my use of the term public "good" includes this possibility.
3. See, e.g., Thomas B. Marvell & Carlisle E. Moody, The Lethal Effects of Three-Strikes Laws, 30 J. LEGAL STUD. 89 (2001).
4. See, e.g., Betsey Stevenson & Justin Wolfers, Bargaining in the Shadow of the Law: Divorce Laws and Family Distress (Nat'l Bureau of Econ. Research, Working Paper No. 10,175, 2003).
5. See, e.g., Leora Friedberg, Did Unilateral Divorce Raise Divorce Rates?: Evidence from Panel Data, 88 AM. ECON. REV. 608 (1998).
6. See, e.g., Ronen Avraham, An Empirical Study of the Impact of Tort Reforms on Medical Malpractice Settlement Payments (Nw. Law & Econ., Research Paper No. 06-07, 2006), available at http://ssrn.com/ abstract=912922;
7. Patricia Born et al., The Effects of Tort Reform on Medical Malpractice Insurers' Ultimate Losses (Harvard Law Sch., John M. Olin Ctr. for Law, Econ. & Bus., Discussion Paper No. 554, 2006).
8. See, e.g., Paul H. Rubin & Joanna M. Shepherd, Tort Reform and Accidental Deaths, 50 J.L. & ECON. 221 (2007).
9. Anup Malani, Does the Felony-Murder Rule Deter? (2000) (unpublished manuscript, on file with the Harvard Law School Library).
10. See, e.g., Michael Ashley Stein, Under the Empirical Radar: An Initial Expressive Law Analysis of the ADA, 90 VA. L. REV. 1151 (2004) (book review).
11. See, e.g., Amitai Aviram, The Placebo Effect of Law 11 (U. Ill. Coll. of Law, Law & Econ. Working Paper No. 36, 2005), available at http://ssrn.com/abstract=784646.
12. See John J. Donohue III & Steven D. Levitt, The Impact of Legalized Abortion on Crime, 116 Q.J. ECON. 379(2001).
13. See, e.g., Thomas S. Dee, Forsaking All Others: The Effects of "Gay Marriage" on Risky Sex (Nat'l Bureau of Econ. Research, Working Paper No. 11,327, 2005), available at http://ssrn.com/ abstract=720413.
14. See, e.g., John J. Donohue & Justin Wolfers, Uses and Abuses of Empirical Evidence in the Death Penalty Debate, 58 STAN. L. REV. 791 (2005);
15. H . Naci Mocan & R. Kaj Gittings, Getting off Death Row: Commuted Sentences and the Deterrent Effect of Capital Punishment, 46 J.L. & ECON. 453 (2003);
16. Joanna M. Shepherd, Murders of Passion, Execution Delays, and the Deterrence of Capital Punishment, 33 J. LEGAL STUD. 283 (2004).
17. See, e.g., David H. Autor et al., The Costs of Wrongful-Discharge Laws, 88 REV. ECON. & STAT. 211 (2006);
18. Thomas Miles, Common Law Exceptions to Employment at Will and U.S. Labor Markets, 16 J.L. ECON. & ORG. 74 (2000).
19. I stress, however, that these findings have not been demonstrated robust to, for example, self-selection. While this and other problems are common to both the hedonic approach and those of the papers from which they are drawn, my results should be taken as a proof-of-concept for the hedonic approach rather than as final policy evaluations.
20. Jennifer Roback, Wages, Rents, and the Quality of Life, 90 J. POL. ECON. 1257 (1982);
21. see also Glenn C. Blomquist et al., New Estimates of Quality of Life in Urban Areas, 78 AM. ECON. REV. 89 (1988).
22. These papers were spurred by two seminal papers by Professor Sherwin Rosen, Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition, 82 J. POL. ECON. 34 (1974);
23. and Wage-based Indexes of Urban Quality of Life, in CURRENT ISSUES IN URBAN ECONOMICS 74 (Peter Mieszkowski & Mahlon Straszheim eds., 1979). Interestingly, three important law and economics scholars have written on this topic, although at the time they were working in the field of public finance and did not spell out the implications of their work for the empirical analysis of laws.
24. See A. Mitchell Polinsky & Daniel L. Rubinfeld, Property Values and the Benefits of Environmental Improvements: Theory and Measurement, in PUBLIC ECONOMICS AND THE QUALITY OF LIFE 154 (Lowdon Wingo & Alan Evans eds., 1977);
25. A. Mitchell Polinsky & Steven Shavell, Amenities and Property Values in a Model of an Urban Area, 5 J. PUB. ECON. 119 (1976).
26. See Charles M. Tiebout, A Pure Theory of Local Expenditures, 64 J. POL. ECON, 416 (1956). Professor Tiebout was responding to Professor Paul Samuelson, who argued that government could never adopt the optimal set of public goods in a heterogeneous population because it could not identify different people's valuations for the goods. Tiebout responded that what Samuelson said is true only for a national government. As long as there were different local governments adopting different laws, heterogeneous residents would reveal their preferences for public goods by their locational choices. In this way, the market for locational choice could lead to efficient production of public goods even in the presence of asymmetric or private information.
27. WILLIAM A. FISCHEL, THE HOMEVOTER HYPOTHESIS 1-18 (2001). So Fischel's response to Samuelson is that local government politics can provide the optimal level of goods without actual migration.
28. To see examples of the difference, consider the examples of capitalization Fischel offers. See id. at 45.
29. Id. at 53-54.
30. Id. at 14, 80.
31. See David N. Figlio & Maurice E. Lucas, What's in a Grade?: School Report Cards and the Housing Market, 94 AM. ECON. REV. 591 (2004);
32. J.M. Pogodzinski & Tim R. Sass, Zoning and Hedonic Housing Price Models, 1 J. HOUSING ECON. 271 (1991);
33. Michael Greenstone & Justin Gallagher, Dots Hazardous Waste Matter?: Evidence From the Housing Market and the Superfund Program (Nat'l Bureau of Econ. Research, Working Paper No. 11,790, 2005).
34. For an example of this perspective, see Greenstone & Gallagher, supra note 22.
35. A simple model of this split capitalization is provided in Roback, supra note 16. at 1259-64.
36. See, e.g., Thomas J. Miles, Felon Disenfranchisement and Voter Turnout, 33 J. LEGAL STUD. 85 (2004).
37. See, e.g., Jonathan Klick & Thomas Stratmann, Abortion Access and Risky Sex Among Teens: Parental Involvement Laws and Sexually Transmitted Diseases (Fla. St. U. Coll. of Law, Pub. Law Research Paper No. 175, 2005), available at http://ssrn.com/abstracts819304.
38. A simple numerical example can demonstrate how the equilibrium is restored. Suppose that residents A and B live in State One and C and D in State Two before State One passes the new law. Assume A, B, C, and D value the new law at $4, $2, $3, and $1 respectively and that each of their houses are valued the same before the passage of the new law. A, whose value is $4, will remain in State One. C, whose value is $3 will bid the pre-law price of a house plus $3 for a house in State One. B, whose value is $2, will accept the bid. (A will not accept because the law is worth more than $3. If C bid only $2 above the pre-law price, then B might not have accepted because she was indifferent. C could not simply offer B her house in State Two, because that house -without the law -is worth less than B's house in State One.) B will take the money from the sale and buy a house in State Two at the pre-law price. She will have made $3 in profits. D will remain put. Note that the new market price for homes in State One is $3 higher than before.
39. The reservation price is the minimum price at which the current owner is willing to sell her home.
40. Interestingly, the hedonic approach is -in the short run before there is actual migration - an application of prediction markets to value a law. The current property owner predicts through her choice of reservation how much others will value the law that has just passed. For discussions of how prediction markets might be used for public policy, see generally Michael Abramowicz & M. Todd Henderson, Prediction Markets for Corporate Governance, 82 NOTRE DAME L. REV. 1343 (2007)1
41. Justin Wolfers & Eric Zitzewitz, Prediction Markets, J. ECON. PERSR, Spring 2004, at 107;
42. and M. Todd Henderson et al., Predicting Crime (2007) (unnumbered working paper, on file with the Harvard Law School Library) .
43. U.S. CENSUS BUREAU, CURRENT POPULATION SURVEY, ANNUAL GEOGRAPHICAL MOBILITY RATES, BY TYPE OF MOVEMENT 1947-2006, at tbl. A-1 (2007), http://www.census.gov/population/socdemo/ migration/tab-a-1.pdf.
44. Id.
45. Of course, actual numbers per state differ. In 2000-2004, they ranged from a net annual outward migration of 182,886 from New York to net annual inward migration of 190,894 to Florida. In rates per 1,000 population, they range from an annual net outward migration of 9.6 in New York to annual net inward migration of 23.3 in Nevada. MARC J. PERRY, U.S. CENSUS BUREAU, CURRENT POPULATION REPORTS P25-1135, DOMESTIC NET MIGRATION IN THE UNITED STATES: 2000-2004, at 6 tbl.2 (2006).
46. See, e.g., Stephanie Innes, 2nd-Parent Curbs Driving Same-Sex Couple from Ariz., ARIZ. DAILY STAR, Dec. 22, 2005, at Ai (reporting that a lesbian couple moved from Arizona to California for the latter's second-parent adoption laws);
47. Maggie Jackson, Same-Sex Couples Face Unique Adoption Hurdles, BOSTON GLOBE, Mar. 26, 2006, at G1 (reporting that a lesbian couple moved from Oklahoma to Massachusetts for more friendly partnership and adoption laws);
48. Julian Sanchez, All Happy Families: The Looming Battle over Gay Parenting, REASON, Aug./Sept. 2005, at 30, 35 (reporting that a gay couple moved from Virginia to Massachusetts for purposes of adoption);
49. Andrea F. Siegel & Nia-Malika Henderson, Gay Father Wins Custody Ruling, BALT. SUN, Mar. 29, 2006, at 3B (reporting that a gay couple moved from Virginia to Maryland because the latter had more friendly second-parent laws).
50. Kelly Griffith, Escape from the Red States, ADVOCATE, July 19, 2005, at 42. A sidebar in that article offered "10 tips for protecting your family when moving from state to state."
51. Id. at 46.
52. The first tip was "Assume nothing. Check everything before making a decision. Seek the advice of a gay-friendly lawyer in the state you are moving to." Id.
53. Lambda Legal, In Your State, http://www.lambdalegal.org/our-work/states (last visited Feb. 9, 2008). In addition, each issue of The Advocate features a section entitled "Across the Nation," which documents legal advances or setbacks for the gay and lesbian community.
54. See, e.g., Erik Brooks, Escaping to Wisconsin: Medical Liability Crisis Sends Illinois Docs Across State Line, BUS. J. MILWAUKEE, June 25, 2004, at A29, available at http://www.bizjournals.com/milwaukee/stories/2004/06/28/focus1.html;
55. Nancy Rishel, An Invisible Crisis: Pennsylvania's Disappearing Doctors, PA. MED., May/June 2001, at 12, 12.
56. See, e.g., FRED J. HELLINGER & WILLIAM E. ENCINOSA, U.S. DEP'T OF HEALTH & HUMAN SERV., THE IMPACT OF STATE LAWS LIMITING MALPRACTICE AWARDS ON THE GEOGRAPHIC DISTRIBUTION OF PHYSICIANS (2003), available at http://www.ahrq.gov/research/tortcaps/tortcaps.pdf;
57. Daniel P. Kessler et al., Impact of Malpractice Reforms on the Supply of Physician Services, 293 JAMA 2618 (2005).
58. But see David A. Matsa, Does Malpractice Liability Keep the Doctor Away?: Evidence from Tort Reform Damage Caps (June 20, 2006) (unnumbered working paper), available at http://ssrn.com/abstracts920846 (finding physician supply response only in rural areas).
59. See, e.g., American Medical Association, Activity in the States, http://www.ama-assn.org/ama/pub/category/7470.html (last visited Feb. 9, 2008).
60. The flip side of this concern is what happens if wages are sticky (at least downwards). See JOHN MAYNARD KEYNES, THE GENERAL THEORY OF EMPLOYMENT, INTEREST, AND MONEY 257-71 (1964) (explaining that workers care about relative nominal wages, the classic theory for sticky wages). In this case, only housing prices adjust to the adoption of a law because wages cannot be lowered. (Note that the sticky wages theory suggests the response to a law may be asymmetric. A bad law may raise wages if they are only sticky downwards.) In any case, the researcher employing the hedonic approach can be indifferent to the sticky wages theory because there is nothing lost in regressing both housing prices and wages on a law only to find no response in wages.
61. Many metropolitan areas, such as New York, overlap two or more states. This does not defeat my claim in general. Moreover, my empirical application will account for overlap by examining the whole metropolitan area and the laws in each overlapped state.
62. It should be noted that the fall in the marginal valuation of a law is greater than the fall in the aggregate valuation of a law. The aggregate valuation of a law is the marginal valuation multiplied by the number of people who reside in State One after passage of the new law. (In Figure 1(A), the aggregate valuation is "abed" when supply is fixed and "cdef" when it is increasing.) Aggregate valuation falls at a lower rate because the new housing production that drives down marginal valuations also increases the number of people living in State One.
63. See U.S. CENSUS BUREAU, supra note 30.
64. Things become more complicated if it is always cheaper to change the law than to move. I doubt this is the case. But even if it is, so long as some people move and the change in law is sequential, that is, State One adopts the law, then State Two, then State Three, etc., it will still be possible to value the law by examining housing prices. I explain how in section II.C.1.b, infra pp. 1301-07.
65. The total welfare effect on a working individual (assuming one worker per household) is the sum of the wage effect plus either the rent effect or the house price effect. The welfare effect on a nonworking individual is simply the rent or house price effect. The investigator should not add both since no individual suffers both a rent effect and a house price effect. This strategy gives four different welfare measures: for workers and nonworkers in rental units and in occupantowned housing units. Since wages are measured on an hourly basis, the wage effect must be adjusted to map onto the same time interval as rents or housing prices. With rents, the wage effect must be multiplied by the average number of hours worked per month. With housing prices, one must multiply the average number of hours worked over the lifetime of the house. This is obviously a more difficult calculation.
66. An interesting possibility is that one can, by comparing the effect of a law on rents versus on housing prices, back out either the discount rate of residents, assuming that a law's value is uniformly distributed over time, or residents' prediction about how long a law will last given a discount rate.
67. See Greenstone & Gallagher, supra note 22.
68. See Henry B. Hansmann, The Role of Nonprofit Enterprise, 89 YALE L.J. 835, 844 (1980). The theory is that the nonprofit form signals to consumers that the firm's products are of high quality. This should increase demand for the product.
69. See Jonathan Gruber, The Incidence of Mandated Maternity Benefits, 84 AM. ECON. REV. 622 (1994).
70. See Jonathan Klick & Thomas Stratmann, Subsidizing Addiction: Do State Health Insurance Mandates Increase Alcohol Consumption?, 35 J. LEGAL STUD, 175 (2006) [hereinafter Klick & Stratmann, Subsidizing Addiction].
71. See, e.g., Edward L. Glaeser & Bryce A. Ward, The Causes and Consequences of Land Use Regulation: Evidence from Greater Boston (Harvard Inst. of Econ. Research, Working Paper 2124, 2006);
72. Edward L. Glaeser et al., Why Have Housing Prices Gone Up? (Nat'l Bureau of Econ. Research, Working Paper 11,129, 2005).
73. Richard M. Hynes et al., The Political Economy of Property Exemption Laws, 47 J.L. & ECON. 19 (2004).
74. See sources cited supra notes 4-5.
75. See, e.g., Daniel P. Kessler et al., Impact of Malpractice Reforms on the Supply of Physician Services, 293 JAMA 2618, 2618-25 (2005);
76. Jonathan Klick & Thomas Stratman, Does Medical Malpractice Reform Help States Retain Physicians and Does It Matter? 3-5 (Nov. 3, 2005) (unnumbered working paper), available at http://ssrn.com/abstracta870492.
77. This argument bears some resemblance to then-Professor Posner's argument for how firms dissipate the rents from a government monopoly in their attempts to obtain that monopoly. See Richard A. Posner, The Social Costs of Monopoly and Regulation, 83 J. POL. ECON. 807 (1975). My argument is simply that one can track individuals' attempts to get locational rents by examining the housing and labor markets.
78. This does not lead to double counting the local consumption or ownership benefits of a law; that is, it does not mean that the second and third columns of Table i overlap. The reason is that my definition of local consumption or ownership is consumption or ownership that must be local to be functional. Examples include a patient who lives by a doctor to obtain treatment from her, and a doctor who must live near the medical practice she owns because she is also the service provider for the practice. By nonlocal consumption and ownership I mean ownership that need not be local, although it could be. An example is the McDonald's Corporation, which is headquartered in Oak Brook, Illinois. An Illinois resident can purchase shares of McDonald's or can purchase McDonald's hamburgers, but so can a resident of Florida. Thus the a in Table i refers to the fraction of not-necessarily-local consumers and owners who just happen to be local.
79. A law that increases labor supply will drive down wages and lower the cost of production. This will benefit individual owners of firms and, as this reduction in costs filters into a lower price, the individual consumers of the firms' products. This demand effect will cause an increase in quantity supplied, which will raise demand for labor and thus the wage that enacting state firms offer.
80. Another less challenging example is rent control. See, e.g., Steven B. Caudill et al., Efficient Estimation of the Costs of Rent Controls, 71 REV. ECON. & STAT. 154, 154-57 (1989). If rent control did not affect supply of housing and were a favorable law, then examining its effect on the per unit price of housing would be misleading. In order to capture the full effect, one would want to look at wages, which might fall. If, as predicted by economic theory, rent control reduces the supply of housing, then it is important to look at aggregate land values as well to capture this supply effect.
81. See supra pp. 1286-87.
82. I thank Doug Lichtman for this example.
83. This other expenditure could have been savings or investments, which are just proxies for future consumption.
84. This is not the case if the law is anticipated. In that case, migrants will move to the state before the law is enacted. All that is required to value the law is to examine housing prices after the law is anticipated but before it is passed.
85. An implicit assumption is that, without some change in State Two's laws, a State One resident will remain in State One if she is looking for a bigger house.
86. FISCHEL, supra note 18, at 1-18.
87. See Richard Schragger, Consuming Government, 101 MICH. L. REV. 1824 (2003)
88. (reviewing FISCHEL, supra note 18).
89. See FISCHEL, supra note 18, at 4-6, 73.
90. Id. at 53-54. Of course, there may be a tradeoff between endogeneity and the precision of estimates. Although state laws are not endogenous, their subject matter may be more remote from property values.
91. See, e.g., Steven D. Levitt, Using Electoral Cycles in Police Hiring to Estimate the Effect of Police on Crime, 87 AM. ECON. REV. 270, 279-84 (1997) [hereinafter Levitt, Using Electoral Cycles];
92. Steven D. Levitt, Using Electoral Cycles in Police Hiring to Estimate the Effects of Police on Crime: Reply, 92 AM. ECON. REV. 1244, 1244-45 (2002) [hereinafter Levitt, Reply].
93. A note of caution is that the researcher should be on guard against the instrument affecting not just the law or policy in question, but also other policies that may affect housing prices. Thus, for example, electoral cycles may not be a valid instrument for policing in the hedonic context because electoral cycles may change other laws (such as taxes) that also affect housing prices. These other changes do not alter crime and are thus valid for the conventional approach. See Levitt, Using Electoral Cycles, supra note 67, at 274-84;
94. Levitt, Reply, supra note 67, at 1244.
95. A related problem, as discussed in note 61, is that residents may anticipate a law even before it is passed. Unless the researcher knows expectations about the law, a regression of housing prices or wages on current law will obtain incorrect estimates of the value of a law. (In general the estimate will be biased toward zero because anticipation does not affect the direction of valuation, only the amount. That is, part of the value of the law is already capitalized before the law is passed, whether that value is positive or negative.) My response to this problem is the same as the response to the expectation of future laws problem in the main text: anticipation effects frequently also afflict the conventional approach, and employing rents rather than housing prices can address the problem.
96. See Anup Malani, Expectations of Future Laws (July 5, 2007) (unpublished manuscript, on file with the Harvard Law Review).
97. Id. at 2-3.
98. The concern with focusing on rental prices is that renters may have different preferences than property owners. This is not a problem if rental properties and owned properties are in equilibrium, that is, if the price of a home is the future stream of rental revenues for that home. In that case, the rental price is disciplined by the alternative of being able to own and vice versa. This imports the preferences of owners into the rents paid by renters. Of course if rental prices and housing prices are not related in this way, then extrapolating from the response of renters gives an incomplete view of the welfare effects of a law.
99. See, e.g., Stephen G. Bronars & John R. Lott, Jr., Criminal Deterrence, Geographic Spillovers, and the Right Tb Carry Concealed Handguns, 88 AM. ECON. REV. PAPERS & PROC. 475 (1998).
100. There is the question of whether one is interested in the welfare of residents within the state before the law or after the law. Given that homeowners who leave the state capture some of the benefits of the law as proceeds from home sales, and that all post-law migrants to the state value the law more than the residents they displace, the ex post measure provides some information on the ex ante measure. This information is confined, however, to the set of outward migrants.
101. To obtain this bound in the short run, for example, simply multiply the marginal migrant's willingness to pay by the number of residents in the state -that is, multiply the increase in housing prices by the number of houses, the increase in rent by the number of rental units, and the increase in wages by the number of workers. The sum of these three calculations is a lower bound on aggregate welfare effects.
102. I say implicit because in reality there is a downward sloping demand function for the law in each state given the current residents of that state. The national demand function I posit is the demand function that would prevail if we could sort residents across states in order of their preference for the law. This is the demand function that would prevail not just nationally but also per state if states sequentially (and unexpectedly) adopted the new law and those with the strongest preferences sequentially moved to states as they adopted the new law.
103. This limitation of the hedonic approach is related to one of the central arguments for federalism: that residents of different states have different preferences and states (should) have the ability to enact laws tailored to the preferences of their residents.
104. The usual indicator is a dummy variable that is set to one when a state adopts a law and remains at one until the state repeals the law or it is struck down.
105. 3 states adopt the law at once, in which case the average marginal valuation is negative. In other words, the average measure is not problematic so long as states sequentially adopt the law.
106. If the states are of different sizes, the usual law variable should be multiplied by the number of housing units or jobs in the states before it is converted to a cumulative measure so that it reflects the correct supply of movement opportunities in states with the law. I recommend normalizing this measure by the average or median number of housing units or jobs per state if the researcher wants to speak to the effect of an additional (average- or median-sized) state adopting the law.
107. This will not hold in two cases. One is where the law has a positive network effect, that is, the value of the law rises as more states enact it. An example is product regulation that drives manufacturers to other states. As other states enact the same regulation, manufacturers will be less inclined to flee states with the regulation. Another exception is where residents are learning about the value of a law, in which case valuations may rise with time or as more states enact the law and experience with the law reveals its positive value, An interesting implication is that the cumulative method of coding laws can identify network effects and learning from laws, whether one is employing the hedonic method or the conventional approach.
108. If the demand curve is increasing for reasons given in the previous footnote, the total welfare value is the area under the whole curve, including the states with negative value because they bear the cost of the network effects or learning.
109. A more technical way to put this is that the hedonic approach implicitly assumes each person's weight in the social welfare function is proportional to her lifetime wealth given complete credit markets.
110. It is useful to note that this method of correcting for wealth bias can also be used to correct for other biases that one suspects in housing markets, For example, if one believed that minorities' or women's opportunities to move were limited, then one might positively weight observations by whether the residence in question was a minority- or female-headed household.
111. While I doubt that this occurs very often, this hunch can be tested by regressing tax rates (not revenues) on a law. If governments are opportunistic, the analysis will reveal a positive coefficient on the law. One should not use revenues in the regression because, even with fixed property tax rates, a good law would increase property values and thus property tax receipts.
112. A normal good is one of which an individual consumes more when her income rises.
113. See, e.g., Janet E. Kohlhase, Labor Supply and Housing Demand for One- and Two-Earner Households, 68 REV. ECON. & STAT. 48, 53 tbl.2 (1986) (reporting income elasticities of 0.130 to 0.662).
114. See, e.g., David S. Abrams & Marianne Bertrand, Do Judges Vary in Their Treatment of Race?, (Aug. 17, 2007) (unpublished manuscript), available at https://www.law.uchicago.edu/files/ AbramsBertrandJudgeso81707.pdf.
115. See, e.g., David E. Clark et al., Migration and Implicit Amenity Markets: Does Incomplete Compensation Matter?, 3 J. ECON. GEOGRAPHY 289, 289-91 (2003);
116. Philip E. Graves, A Life-Cycle Empirical Analysis of Migration and Climate, by Race, 6 J. URB. ECON. 135, 135-36 (1979);
117. Philip E. Graves & Peter D. Linneman, Household Migration: Theoretical and Empirical Results, 6. J. URB. ECON. 383, 383-84 (1979);
118. Ben-Chien Liu, Local Government Finance and Metropolitan Employment Growth: A Simultaneous-Equation Model, 43 S. ECON, J. 1379, 1379-80 (1977).
119. See, e.g., Daniel J. Phaneuf & V. Kerry Smith, Recreation Demand Models, in 2 HANDBOOK OF ENVIRONMENTAL ECONOMICS 671 (Karl-Göran Maler & Jeffrey R. Vincent eds., 2005);
120. Gardner Brown, Jr. & Robert Mendelsohn, The Hedonic Travel Cost Method, 66 REV. ECON. & STAT. 427 (1984).
121. See, e.g., Richard T. Carson Sz W. Michael Hanemann, Contingent Valuation, in 2 HANDBOOK OF ENVIRONMENTAL ECONOMICS, supra note 90, at 821.
122. See Tomas Philipson & Anup Malani, Measurement Errors: A Principal Investigator-Agent Approach, 91 J. ECONOMETRICS 273, 273-75 (1999).
123. See Joanna M. Shepherd, Police, Prosecutors, Criminals, and Determinate Sentencing: The Truth About Truth-In-Sentencing Laws, 45 J.L. & ECON. 509, 515-16 (2002).
124. See Alma Cohen & Rajeev Dehejia, The Effect of Automobile Insurance and Accident Liability Laws on Traffic Fatalities, 47 J.L. & ECON. 357, 373-82 (2004);
125. J. David Cummins et al., The Incentive Effects of No-Fault Automobile Insurance, 44 J.L. & ECON, 427, 444-54 (2001).
126. See, e.g., supra notes 3-7 and accompanying text.
127. Perhaps more problematic, hedonic valuation in the short run before migration depends on homeowners' predictions of potential migrants' subjective valuations.
128. See David H. Autor et al., The Employment Consequences of Wrongful-Discharge Laws: Large, Small, or None at All?, 94 AM. ECON. REV. PAPERS & PROC. 440, 445 (2004).
129. See David H. Autor, Outsourcing at Will: The Contribution of Unjust Dismissal Doctrine to the Growth of Employment Outsourcing, 21 J. LAB. ECON. 1, 1-4 (2003).
130. It is true that the first regression suffers omitted variable bias, but that is its intent: to capture the full effect of a law.
131. See Marvell & Moody, supra note 3, at 106.
132. While I do not mean to justify abortion rights on this ground, it would be hard to contend that the fall in crime is not a benefit in some sense.
133. See, e.g., ELIZABETH LOVELL, NPSCC, MEGAN'S LAW: DOES IT PROTECT CHILDREN? (2001).
134. For an updated summary of findings, see KATE FITCH, NPSCC, MEGAN'S LAW, DOES IT PROTECT CHILDREN? (2) - AN UPDATED REVIEW OF EVIDENCE (2006), available at http://www.nspcc.org.uk/Inform/ publications/Downloads/meganslaw2_wdf48102.pdf.
135. See also Thomas John Miles, Three Empirical Essays in the Economics of Crime 46-78 (June 2000) (unpublished Ph.D. dissertation, University of Chicago) (on file with the Harvard Law School Library).
136. Perhaps one could use levels of happiness from the General Social Survey, but that is a very rough measure and the outcomes are hard to interpret. For example, what does it mean for welfare to find that people are more likely to say they are "very happy" as opposed to merely "happy" in states with Megan's Law?
137. See, e.g., Leigh L. Linden & Jonah E. Rockoff, There Goes the Neighborhood?; Estimates of the Impact of Crime Risk on Property Values from Megan's Laws (2006) (unnumbered working paper, on file with the Harvard Law School Library), available at http://ssrn.com/abstract=903178.
138. The national survey was conducted annually from 1973-1981 and biannually after that. In interceding years after 1981, HUD conducted a metropolitan version of its survey. Although both versions confine their sample to metropolitan statistical areas (MSAs), the metropolitan version focuses on a narrower set of the most populous MSAs so as to enable more precise inferences about the nature of housing in those MSAs. Therefore, the sample covers a smaller number of states in even years.
139. prior to 1984, this assessment was recoded into $5,000 bins. For these years, I assign to each house a value equal to the midpoint of the bin to which the owner's subjective valuation is assigned.
140. See, e.g., Gerald Carlino & N. Edward Coulson, Compensating Differentials and the Social Benefits of the NFL, 56 J. URB. ECON. 25 (2004).
141. Cohen & Dehejia, supra note 94.
142. Autor et al., supra note 14.
143. Jonathan Klick & Sara Markowitz, Are Mental Health Insurance Mandates Effective?: Evidence from Suicides, 15 HEALTH ECON. 83 (2006);
144. Klick & Stratmann, Subsidizing Addiction, supra note 49;
145. Jonathan Klick & Thomas Stratmann, Diabetes Treatments and Moral Hazard (Fla. St. U. Coll. of Law, Pub. Law & Legal Theory Working Paper 159, Law & Econ. Working Paper No. 05-21, 2005) [hereinafter Klick & Stratmann, Diabetes].
146. Rubin & Shepherd, supra note 7.
147. See supra pp. 1298-99.
148. But see Greenstone & Gallagher, supra note 22 (using locations near hazardous waste sites as treatments and locations without such sites as controls to evaluate a federal environmental cleanup law).
149. These are generally indicated in Table 2. The rent and value regressions include log of all non-indicator variables. The wage regressions also include the worker's age squared and indicators for major industry and occupation.
150. ijt.
151. it. While conventional analyses, which use the same methods to address omitted variable problems I do, also face this residual risk of bias, it may be smaller because there are fewer laws that affect any specific proximate behavior than that affect housing prices, rents, and wages.
152. These include the fractions of each state's delegations to the Senate and House and the fractions of the upper and lower houses of each state's legislature that are Republican. I thank John Klick for these data.
153. A partial solution is to add the conventional outcome that raises concerns about the endogeneity of a law as an explanatory variable to the housing and wage regressions. This would estimate the effect of the law on welfare exclusive of endogenous channels. This is valuable so long as one does not suspect that welfare effects through nonendogenous channels are negatively related to welfare effects through endogenous channels.
154. While on this topic, I should note that estimation with robust White standard errors does not materially change the results as compared to clustering at the state level. Robust standard errors address, for example, serial correlation in errors. See Marianne Bertrand et al., How Much Should We Trust Difference-In-Differences Estimates, 119 Q.J. ECON. 249 (2004).
155. The two-year lagged law results are reproduced in Table 3.
156. I only include units in low-rise buildings in the regression results I report in the text. The area of a unit is not the same as land area. Land area depends on the number of floors in a building and number of floors per unit. I do not have data on number of floors, so I proxy this with indicators for low-rise and high-rise buildings.
157. By marginally insignificant I mean the range between the 75% and 90% confidence levels for a two-sided test., 12.65 = 25.85 - (12 × 1.1).
158. See, e.g., John Bound & Richard B. Freeman, What Went Wrong?; The Erosion of Relative Earnings and Employment Among Young Black Men in the 1980s, 107 Q.J. ECON. 201, 203 (1992);
159. David Card & Thomas Lemieux, Can Falling Supply Explain the Rising Return to College for Younger Men?; A Cohort-Based Analysis, 116 Q.J. ECON. 705, 715 (2001);
160. Lawrence F. Katz & Kevin M. Murphy, Changes in Relative Wages, 1963-1987: Supply and Demand Factors, 107 Q.J. ECON. 35, 38 (1992)-
161. It is difficult to calculate covariances of the coefficients in the rent and wage regressions. In part this is because the two data sets are already so large. More importantly it is because the units of observation for the two regressions are not the same: households for the rent regression and workers for the wage regression. Thus one cannot be confident that, for example, stacking the two regression equations yields meaningful estimates of covariances of coefficient estimates.
162. Cohen & Dehejia, supra note 94, at 378-82 & tbl.7.
163. Autor et al., supra note 14, at 216-19 & tbls.1-2.
164. Klick & Stratmann, Diabetes, supra note no, at 14-22 & tbls.3-6.
165. Klick & Stratmann, Subsidizing Addiction, supra note 49, at 180-94 & tbls.2-4.
166. Id. at 177-78, 180-82, 194;
167. Klick & Stratmann, Diabetes, supra note no, at 6-11, 22-23.
168. Rubin & Shepherd, supra note 7, at 227-35 & tbls.3-4.