This article develops a welfare theoretic framework for interpreting evidence on the impacts of public programs on housing markets. We extend Rosen's hedonic model to explain how housing prices capitalize exogenous shocks to public goods and externalities. The model predicts that trading between heterogeneous buyers and sellers will drive a wedge between these “capitalization effects” and welfare changes. We test this hypothesis in the context of changes in measures of school quality in five metropolitan areas. Results from boundary discontinuity designs suggest that capitalization effects understate parents’ willingness to pay for public school improvements by as much as 75%.

Theory suggests that human behavior has implications for disease spread. We examine the hypothesis that individuals engage in voluntary defensive behavior during an epidemic. We estimate the number of passengers missing previously purchased flights as a function of concern for swine flu or A/H1N1 influenza using 1.7 million detailed flight records, Google Trends, and the World Health Organization's FluNet data. We estimate that concern over “swine flu,” as measured by Google Trends, accounted for 0.34% of missed flights during the epidemic. The Google Trends data correlates strongly with media attention, but poorly (at times negatively) with reported cases in FluNet. Passengers show no response to reported cases. Passengers skipping their purchased trips forwent at least $50 M in travel related benefits. Responding to actual cases would have cut this estimate in half. Thus, people appear to respond to an epidemic by voluntarily engaging in self-protection behavior, but this behavior may not be responsive to objective measures of risk. Clearer risk communication could substantially reduce epidemic costs. People undertaking costly risk reduction behavior, for example, forgoing nonrefundable flights, suggests they may also make less costly behavior adjustments to avoid infection. Accounting for defensive behaviors may be important for forecasting epidemics, but linking behavior with epidemics likely requires consideration of risk communication.

This article develops welfare-consistent measures of the employment effects of environmental regulation. Our analysis is based on a microeconomic model of how households with heterogeneous preferences and skills decide where to live and work. We use the model to examine how job loss and unemployment would affect workers in Northern California. Our stylized simulations produce earnings losses that are consistent with empirical evidence. They also produce two new insights. First, we find that earnings losses are sensitive to business cycle conditions. Second, we find that earnings losses may substantially understate welfare losses once we account for the fact that workers may have to commute further or live in a less desirable community after losing a job.