Are Poor Cities Cheap for Everyone? Non-Homotheticity and the Cost of Living Across U.S. Cities
By Jessie Handbury. Social Science Research Network, 2013
148 citations recorded by the source corpus.
This paper shows that the products and prices offered in markets are correlated with local income‐specific tastes. To quantify the welfare impact of this variation, I calculate local price indexes micro‐founded by a model of non‐homothetic demand over thousands of grocery products. These indexes reveal large differences in how wealthy and poor households perceive the choice sets available in wealthy and poor cities. Relative to low‐income households, high‐income households enjoy 40 percent higher utility per dollar expenditure in wealthy cities, relative to poor cities. Similar patterns are observed across stores in different neighborhoods. Most of this variation is explained by differences in the product assortment offered, rather than the relative prices charged, by chains that operate in different markets.
Subfields: Economics and Econometrics, Marketing
View Paper: https://www.semanticscholar.org/paper/846679f177240aa786420ec37a0d2656e8c9aa63
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Citations in the corpus
- How Segregated Is Urban Consumption? (2019, unknown): “Studies have documented cross-city variation in the tradable goods available for consumption (Handbury 2013; Handbury and Weinstein 2015), and geographic variation in the supply of nontradables has been posited to shape the relative attractiveness of cities (Glaeser, Kolko, and Saiz 2001; Schiff…”
- Multiproduct-Firm Oligopoly: An Aggregative Games Approach (2018, unknown): “…be adapted to accommodate consumer heterogeneity in the quantity purchased of the same 11See however Fajgelbaum, Grossman, and Helpman (2011), Handbury (2013) and Fally and Faber (2016) for recent examples of international trade papers deriving demand from (special cases of)…”
- The Alibaba effect: Spatial consumption inequality and the welfare gains from e-commerce (2018, background): “This includes studies on tradable goods, especially groceries (Broda and Weinstein, 2006; Handbury, 2013; Handbury and Weinstein, 2014; Hottman, 2014) and non-tradable goods and services such as restaurants and local amenities (Couture, 2015; Diamond, 2015).”
- The comparative advantage of cities (2020, unknown): “Couture, Gaubert, Handbury, and Hurst (2019) quantify such welfare implications of income growth by introducing idiosyncratic preferences shocks to a model of urban spatial sorting.”