Constructing and validating a best-fit economic well-being index for urban U.S. counties: a Tiebout model approach

This study builds on the history of economic well-being (EWB) index construction to develop such an index for urban U.S. counties (population > 62,437). Unlike previous studies, we rely on external validation of economic well-being to construct a best-fit index, where our external validation approach follows the Tiebout Hypothesis. We estimate a best-fit, linear regression-based index, in which lagged features of economic well-being are weighted based on ability to explain subsequent county population change. Compared to an arbitrarily equally-weighted model using a composite index a model using lagged weighted EWB individual variables provide greater transparency while also explaining substantially more variation in population change across urban counties (19.9% vs. 15.7%).