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Abstract
Spatial equilibrium models rely on migration to arbitrage away differences in utility
across locations net of moving costs, where remaining differences in wages and rents reflect the
compensating differentials related to site-specific amenities. Recent refinements to the spatial
equilibrium model focus upon the prospect of disequilibrium in amenity markets. Amenity
market disequilibrium implies over- or under-compensation (incomplete compensation) across
some locations, which suggests a role for these factors in subsequent migration. This paper follows
the theoretical and empirical approach of Clark, Herrin, Knapp, and White (2003). An
intercity wage regression is estimated where fixed effects capture the impact of site characteristics
on wages. We then regress the fixed effects on a comprehensive vector of site attributes,
where the residuals capture incomplete compensation in wages. The derived measures of incomplete
compensation are included in a binary logit model of migration. The results provide
further evidence that incomplete compensation for site characteristics is a significant factor in
migration decisions, and the findings are consistent with tendencies toward spatial equilibrium.