A Unified Framework for Measuring Preferences for Schools and Neighborhoods

Patrick Bayer, Fernando Ferreira and Robert McMillan

No 13236, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper develops a comprehensive framework for estimating household preferences for school and neighborhood attributes in the presence of sorting. It embeds a boundary discontinuity design in a heterogeneous model of residential choice to address the endogeneity of school and neighborhood attributes. The model is estimated using restricted-access Census data from a large metropolitan area, yielding a number of new results. First, households are willing to pay less than one percent more in house prices -- substantially lower than previous estimates -- when the average performance of the local school increases by five percent. Second, much of the apparent willingness to pay for more educated and wealthier neighbors is explained by the correlation of these sociodemographic measures with unobserved neighborhood quality. Third, neighborhood race is not capitalized directly into housing prices; instead, the negative correlation of neighborhood race and housing prices is due entirely to the fact that blacks live in unobservably lower quality neighborhoods. Finally, there is considerable heterogeneity in preferences for schools and neighbors: in particular, we find that households prefer to self-segregate on the basis of both race and education.

JEL-codes: H0 H4 H72 R0 R21 R31 (search for similar items in EconPapers)
Date: 2007-07
New Economics Papers: this item is included in nep-dcm, nep-edu, nep-geo, nep-pbe and nep-ure
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Citations: View citations in EconPapers (640)

Published as Patrick Bayer & Fernando Ferreira & Robert McMillan, 2007. "A Unified Framework for Measuring Preferences for Schools and Neighborhoods," Journal of Political Economy, University of Chicago Press, vol. 115(4), pages 588-638, 08.

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Related works:
Working Paper: A Unified Framework for Measuring Preferences for Schools and Neighborhoods (2007)
Working Paper: A Unified Framework for Measuring Preferences for Schools and Neighborhoods (2003)
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