Are States with Larger than Average Black Populations Really the Worst Places to live in the USA? A Spatial Equilibrium Approach to Ranking Quality of Life
Quality-of-life rankings based on location-specific attributes/local amenities could induce elected official and policy makers into incorrectly constructing economic development plans if the ranking scheme was flawed. Hierarchical rankings of states in the USA in terms of quality-of-life that use an explicit amenity accounting method, typically assign lower ranks to states with large Black American populations. We show that these rankings utilize methodologies that are not based on economic theory, and that they arbitrarily construct ranking schemes about what individuals and firms value about the places where they locate. This pick-and-choose amenities accounting approach has its merits; however, we show that this approach introduces a bias into the ranking process. An alternative theoretically tenable and unbiased approach to measuring quality-of-life in particular locations follows from two important notions. First, a significant amount of what individuals and firms value in the places where they locate is unobservable. Secondly, the value of tangible and intangible location specific attributes (amenities) is captured by the difference between amenity-adjusted, housing prices and incomes. We implement a ranking scheme consistent with this notion, and find that when ranking states in the USA in terms of quality-of-life, states with large Black populations move up in the rankings substantially. Additionally, we find that relative to standard explicit amenity accounting quality-of-life measure, our spatial equilibrium measures can better explain the location choices of individuals, as measured by net migration
