Location as an Asset

Esteban Rossi-Hansberg and Adrien Bilal

No 13063, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The location of individuals determines their job opportunities, living amenities, and housing costs. We argue that it is useful to conceptualize the location choice of individuals as a decision to invest in a `location asset'. This asset has a cost equal to the location's rent, and a payoff through better job opportunities and, potentially, more human capital for the individual and her children. As with any asset, savers in the location asset transfer resources into the future by going to expensive locations with good future opportunities. In contrast, borrowers transfer resources to the present by going to cheap locations that offer few other advantages. As in a standard portfolio problem, holdings of this asset depend on the comparison of its rate of return with that of other assets. Differently from other assets, the location asset is not subject to borrowing constraints, so it is used by individuals with little or no wealth that want to borrow. We provide an analytical model to make this idea precise and to derive a number of related implications, including an agent's mobility choices after experiencing negative income shocks. The model can rationalize why low wealth individuals locate in low income regions with low opportunities even in the absence of mobility costs. We document the investment dimension of location, and confirm the core predictions of our theory with French individual panel data from tax returns.

JEL-codes: D14 E21 J61 R23 (search for similar items in EconPapers)
Date: 2018-07
New Economics Papers: this item is included in nep-geo, nep-lab, nep-mac and nep-mig
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
https://cepr.org/publications/DP13063 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: Location as an Asset (2021)
Working Paper: Location as an Asset (2018)
Working Paper: Location as an Asset (2018)
Working Paper: Location as an Asset (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:13063

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP13063

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().