Freeman, A. Myrick, III

English

University of New Mexico

Volume 21 
Issue 1 Winter 1981 
Winter 1981 
The Economic Value of the Quality of Life, Thomas M. Power 
A. Myrick Freeman III 
Recommended Citation 
A. Myrick Freeman III, The Economic Value of the Quality of Life, Thomas M. Power, 21 Nat. Resources J. 
190 (1981). 
Available at: https://digitalrepository.unm.edu/nrj/vol21/iss1/15 
This Book Review is brought to you for free and open access by the Law Journals at UNM Digital Repository. It has 
been accepted for inclusion in Natural Resources Journal by an authorized editor of UNM Digital Repository. For 
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THE ECONOMIC VALUE OF THE QUALITY OF LIFE
By THOMAS M. POWER
Boulder: Westview Press, 1980. Pp. 144.
This book represents an effort to impute an economic value to at
least some components of "The Quality of Life" so that ultimately
measures of economic welfare such as per capita real income could
be adjusted to reflect components of economic welfare derived from
sources other than market transactions. The primary focus in this
book is on interurban wage differentials as reflecting compensation
for differences in the quality of life across standard metropolitan sta-
tistical areas. Power's main hypothesis is that in the long run the
mobility of labor among cities assures that interurban wage differen-
tials will be equal to workers' monetary valuations of differences in
the social, cultural, and environmental amenities available in each
urban area. These wage differentials will make at least the marginal
worker indifferent as to which city he or she chooses to work and to
live in. Thus higher wages do not reflect higher welfare, but rather
the monetary compensation necessary to make the worker willing to
accept the lower level of urban amenities.
Power finds support for this hypothesis in regressions of average
money wage rates against measures of urbanization including popula-
tion and population density and in reviews of several other empirical
studies of wages and city size. He concludes that as a first approxima-
tion a tenfold increase in urbanization as measured by population is
associated with a 10% increase in wages to compensate for urban dis-
amenities. Power then shows that if this empirical relationship is
valid, virtually all of the lower per capita personal income in his
home state of Montana may be offset by a higher quality of life asso-
ciated with the smaller city size there. As a check on this conclusion,
Power also makes an effort at the direct measurement of the eco-
nomic value of lower crime, more recreation opportunities, lower air
pollution, and reduced congestion in Montana. These estimates re-
quire imputations of unit values for which there is very little empiri-
cal foundation. The results of this analysis are carefully qualified.
But Power finds tentative support for the conclusion that lower
wages in Montana measure the higher quality of life there.
Power draws several conclusions from his theoretical and empirical
analysis. First, if labor and capital are mobile among regions, no one
region can be substantially better off in the nation as a whole with-
out inducing capital and labor flows to that region which will reduce
both the quality of life and money incomes there. Second, a region's
lower per capita income is not necessarily a sign of lower per capita
January 19811 ECONOMIC VALUE OF THE QUALITY OF LIFE
welfare. And finally, regional economic growth may be self defeating
in the sense that in the long run money income gains will do no more
than compensate for reductions in the quality of life.
Since as his own references make clear, Power is not the first to
suggest that interurban wage differentials might arise to compensate
for differences in some aspect of quality of life, a reviewer must ask
what has Power added to our understanding of the nature of the
wage/quality relationship and its implications for economic and
social policy. His discussion of his conclusions and policy implica-
tions is interesting and provocative. It represents a challenge to the
conventional "Chamber of Commerce" pro-regional growth point of
view without being totally anti-growth. This part of the book de-
serves to be read by regional economists and policy makers. But on
the other side of the ledger, it must be said that the body of empiri-
cal evidence is not conclusive with respect to his basic hypothesis.
The empirical task he and others have undertaken is basically the
estimation of a hedonic wage function. Yet there is no reference to
the literature on hedonic price estimation. This literature has much
guidance to offer concerning problems of model specification, func-
tional form, and the choice of explanatory variables. This is perhaps
not the place to enter into a technical discussion of theoretical and
empirical aspects of the estimation of hedonic wage functions. But
the reader interested in pursuing these points could consult Meyer
and Leone' on measurement problems and the results of including a
wider range of urban quality variables, and Rosen,2 Lucas 3 and Free-
man' for discussions of the hedonic price theory and its application
to labor markets.
A. MYRICK FREEMAN III
Department of Economics
Bowdoin College
1. See Meyer & Leone, The Urban Disamenity Revisited, in PUBLIC ECONOMICS AND
THE QUALITY OF LIFE 66 (L. Wingo & A. Evans, eds. 1978).
2. Rosen, Hedonic Prices and Implicit Markets: Product Differentiation in Pure Compe-
tition, 82 J. of POL. ECON. 34 (1974).
3. Lucas, Hedonic Wage Equations and Psychic Wages in the Returns to Schooling, 67
AM. ECON. REV. 549 (1977).
4. Freeman, The Hedonic Price Technique and the Value of aimate as a Resource
(paper presented at Workshop on the Economic Impact of Climate Change, Ft. Lauderdale,
Florida, April 24-25, 1980).


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