2001
Abstract:
This paper provides the first application of the compensating differential paradigm to the evaluation of the extent and
sources of evolution in state quality-of-life. The compensating differentials approach derives from early work by
Rosen (1979) and Roback (1982), who showed how to extract quality-of-life measures from compensating differentials
in wages and house prices. To date, however, empirical analysis of compensating differentials generally has been
cross-sectional in nature and provides little insight as to the extent or determinants of changes over time in the
quality of life. In this paper, we provide estimates of the evolution in quality-of-life rankings for U.S. states over the
1981- 1990 period. Our findings indicate that the quality-of-life rankings are relatively stable across model
specifications and over time for certain poorly ranked, densely-populated Midwestern and eastern industrial states
and also for other high quality-of-life rural western states. However, we find substantial deterioration in quality-of-life
rankings in some states that experienced rapid population growth during the decade. Reduced spending on
infrastructure, increased traffic congestion, and air pollution account for the bulk of the deterioration in quality-oflife in these states. As would be expected, improvement in those same factors is shown to result in marked ascension
in quality-of-life ranks among other states.
