Discussion Paper No. 571
April 29, 2026
Housing Supply, Property Insurance, and Exposure to Wildfire Risk
Author:
Abstract:
In the past two decades, about half of the new homes in the United States were built in areas at risk of natural hazards. Why is residential development exposed to such risk? I argue that regulated property-insurance pricing and land-use regulations contribute to this pattern. I study this mechanism in the metropolitan area of San Diego, California, where insurance rules compress the premium gradient with respect to wildfire risk and safer locations are highly regulated and built out. Using detailed spatial data on zoning, wildfire risk, housing, commuting, and premiums, I estimate a quantitative urban model of household location choice, housing supply, and insurance supply. The estimates imply that wildfire premiums are 10.5% below actuarially fair pricing, that the average amenity cost of current wildfire risk is equivalent to 3.5% of income, and that the total present-value welfare cost of current wildfire risk, including property damages, is $17.5 billion. This aggregate cost masks substantial incidence heterogeneity, as owners of safe land benefit from equilibrium scarcity effects. Counterfactuals show that housing supply and insurance pricing interact in determining incidence. In the benchmark specification, targeted housing reforms leave the aggregate effect of cost-based insurance nearly unchanged while attenuating its burden on workers: relative to baseline, workers' wildfire costs rise by 2.3% under insurance reform alone, but fall by 0.9% under the joint reform.
Keywords:
climate; environment; natural disasters; wildfires; spatial; urban; land-use regulation; zoning;
JEL-Classification:
O18; Q54; Q56; R23; R31; R52;
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Discussion Paper No. 563
February 16, 2026
The Price of Productivity
Author:
Abstract:
We construct a new micro-geographic commercial rent index for Germany to study the capitalization of agglomeration economies into floor space prices. In large local labor markets, commercial rents decline by -17% per kilometer from the central business district, compared to 13% for residential rents, reflecting stronger agglomeration benefits at the center. Commercial rents in central business districts increase with local labor market size at an elasticity of 15%, implying that wage responses capture only about half of the agglomeration effect on total factor productivity.
Keywords:
floor space; rents; spatial equilibrium; total factor productivity;
JEL-Classification:
L2; R3;
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Discussion Paper No. 561
January 26, 2026
The Economics of Architecture
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Abstract:
We illustrate the coordination problem in the provision of distinctive architectural design that arises from design externalities within a quantitative model. To quantify the model, we conduct a quantitative review of a growing literature concerned with the costs and benefits of distinctive design as well as a survey of architectural design preferences. We find that distinctive buildings sell at a 15% premium, on average. Positive design spillovers from distinctive nearby buildings result in a 9% premium. Distinctive buildings, however, are about 25% more expensive to build. The distribution of design ratings within buildings is well described by a Fr´echet distribution with a shape parameter of about 4. Parametrising the model to match these moments, we show in counterfactual simulations that the optimal subsidy of distinctive buildings amounts to 10% of construction costs.
Keywords:
architecture; design; economics; regulation; welfare;
JEL-Classification:
R3; N9;
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Discussion Paper No. 544
September 19, 2025
Measuring the Urban Quality of Life Premium
Author:
Abstract:
We employ a quantitative spatial model that accounts for trade fritions—generated by trade costs and non-tradable services—and mobility frictions—generated by idiosyncratic tastes and local ties—to recover unobserved quality of life (QoL) and estimate the urban QoL premium. For Germany, we find that a city twice as large offers, on average, a 22% higher QoL to the average resident—far exceeding the urban wage premium of 4%. Our model-based Monte Carlo simulations suggest that the lack of strong empirical evidence for an urban QoL premium in earlier literature likely stems from measurement error in the Rosen-Roback framework due to omitted spatial frictions.
Keywords:
housing; spatial frictions; rents; prices; productivity; quality of life; spatial equilibrium; wages;
JEL-Classification:
J2; J3; R2; R3; R5;
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Discussion Paper No. 526
February 14, 2025
Geoeconomic Fragmentation and the Role of Non-Aligned Countries
Author:
Abstract:
We analyze how non-aligned countries affect welfare outcomes in scenarios of global trade fragmentation. Using a quantitative trade model covering 141 countries and 65 economic sectors, we simulate different scenarios of geoeconomic fragmentation. We find that major non-aligned countries benefit from their neutral position, with welfare gains of up to 0.7%. Their manufacturing sectors particularly benefit under incomplete fragmentation, experiencing value added gains of 2.5%, while agriculture and services face modest declines. These gains turn into significant losses if they join either the Western or Eastern trade bloc. Moreover, world welfare losses increase from -1.9% under incomplete fragmentation to -2.7% when non-aligned countries join the West and to -3.7% when they join the East. Our results highlight the strategic importance of non-aligned countries in mitigating the negative effects of global trade fragmentation.
Keywords:
trade policy; gains from trade; global value chains; quantitative trade models; general equilibrium;
JEL-Classification:
F11; F13; F15; F17; F51;
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Discussion Paper No. 522
January 23, 2025
Measuring Quality of Life under Spatial Frictions
Author:
Abstract:
Using a quantitative spatial model as a data-generating process, we explore how spatial frictions affect the measurement of quality of life. We find that under a canonical parameterization, mobility frictions—generated by idiosyncratic tastes and local ties—dominate trade frictions—generated by trade costs and non-tradable services—as a source of measurement error in the Rosen-Roback framework. This non-classical measurement error leads to a downward bias in es-timates of the urban quality-of-life premium. Our application to Germany reveals that accounting for spatial frictions results in larger quality-of-life differences, different quality-of-life rankings, and an urban quality-of-life premium that exceeds the urban wage premium.
Keywords:
housing; spatial frictions; rents; prices; productivity; quality of life; spatial equilibrium; wages;
JEL-Classification:
J200; J300; R200; R300; R500;