ABSTRACT
The main purpose of the sorting models that have been discussed in the previous chapter is to estimate the revealed preferences of households with respect to urban amenities.1 These preferences reveal the value households attach to urban amenities and can be conveniently expressed in terms of their marginal willingness to pay (WTP) for them. Local governments that want to make their city more attractive to households should spend their limited budgets efficiently and therefore should concentrate on amenities that are appreciated. Since these amenities are usually not provided by the market, our estimations are useful for policy evaluation purposes. Preferences are generally regarded as a stable characteristic of households. It is therefore reasonable to expect that the measured preferences will also drive the allocation of households over residential choice alternatives in circumstances that differ from those under which the model has been estimated. This suggests that we can use the model to investigate the choices that will be made under such alternative, counterfactual conditions. The model can thus be used to simulate such allocations as well as the corresponding house prices, and inform policy makers about the consequences of possible changes in the provision of amenities.
