Tiebout Sorting, Social Multipliers and the Demand for School Quality

Patrick Bayer, Fernando Ferreira and Robert McMillan

No 10871, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In many theoretical public finance models, school quality plays a central role as a determinant of household location choices and in turn, of neighborhood stratification. In contrast, the recent empirical literature has almost universally concluded that the direct effect of school quality on housing demand is weak, a conclusion that is robust across a variety of research designs. Using an equilibrium model of residential sorting, this paper closes the gap between these literatures, providing clear evidence that the full effect of school quality on residential sorting is significantly larger than the direct effect -- four times as great for education stratification, twice for income stratification. This is due to a strong social multiplier associated with heterogeneous preferences for peers and neighbors; initial changes in school quality set in motion a process of re-sorting on the basis of neighborhood characteristics that reinforces itself, giving rise to substantially larger stratification effects.

JEL-codes: H41 I20 R21 (search for similar items in EconPapers)
Date: 2004-11
New Economics Papers: this item is included in nep-geo and nep-ure
Note: ED
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Citations: View citations in EconPapers (42)

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