Econometrica

Journal Of The Econometric Society

An International Society for the Advancement of Economic
Theory in its Relation to Statistics and Mathematics

Edited by: Guido W. Imbens • Print ISSN: 0012-9682 • Online ISSN: 1468-0262

Econometrica: Nov, 2021, Volume 89, Issue 6

Are Poor Cities Cheap for Everyone? Non-Homotheticity and the Cost of Living Across U.S. Cities

https://doi.org/10.3982/ECTA11738
p. 2679-2715

Jessie Handbury

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.


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Supplemental Material

Supplement to "Are Poor Cities Cheap for Everyone? Non-Homotheticity and the Cost of Living Across U.S. Cities"

This zip file contains the replication files for the manuscript. It also contains an additional appendix for the manuscript.

Supplement to "Are Poor Cities Cheap for Everyone? Non-Homotheticity and the Cost of Living Across U.S. Cities"

This appendix contains material not found within the manuscript.