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Neighbourhood effects and housing demand

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Author Info
Yannis M. Ioannides (Department of Economics, Tufts University, Medford, MA 02155, USA)
Jeffrey E. Zabel (Department of Economics, Tufts University, Medford, MA 02155, USA)

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Abstract

In this paper, we estimate a model of housing demand with neighbourhood effects. We exploit special features of the national sample of the American Housing Survey and properties of housing markets that allow us to create 'natural' instruments and therefore identify the impact of social interactions. We find evidence of both endogenous and contextual neighbourhood effects. We report two alternative sets of estimates for neighbourhood effects that differ in terms of the instruments we use for estimating the model. When the endogenous neighbourhood effect is large the respective contextual effects are weak, and vice versa. The elasticity of housing demand with respect to the mean of the neighbours' housing demands (the endogenous effect) ranges from 0.19 to 0.66 and is generally very significant. The contextual effects are also very significant. A key such effect, the elasticity with respect to the mean of neighbours' permanent incomes, ranges from 0.17 to 0.54. Copyright © 2003 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/jae.740
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Publisher Info
Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

Volume (Year): 18 (2003)
Issue (Month): 5 ()
Pages: 563-584
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Handle: RePEc:jae:japmet:v:18:y:2003:i:5:p:563-584

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. William A. Brock & Steven N. Durlauf, 2000. "Interactions-Based Models," Working Papers 00-05-028, Santa Fe Institute.
    Other versions:
  2. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb.. [Downloadable!] (restricted)
  3. Olsen, Edgar O., 1987. "The demand and supply of housing service: A critical survey of the empirical literature," Handbook of Regional and Urban Economics, in: E. S. Mills (ed.), Handbook of Regional and Urban Economics, edition 1, volume 2, chapter 25, pages 989-1022 Elsevier. [Downloadable!] (restricted)
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  6. Yannis Ioannides, 2001. "Neighborhood Income Distributions," Discussion Papers Series, Department of Economics, Tufts University 0103, Department of Economics, Tufts University. [Downloadable!]
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  7. Case, Anne C, 1991. "Spatial Patterns in Household Demand," Econometrica, Econometric Society, vol. 59(4), pages 953-65, July. [Downloadable!] (restricted)
  8. Goodman, Allen C., 1988. "An econometric model of housing price, permanent income, tenure choice, and housing demand," Journal of Urban Economics, Elsevier, vol. 23(3), pages 327-353, May. [Downloadable!] (restricted)
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  14. Mills, Edwin S. & Simenauer, Ronald, 1996. "New Hedonic Estimates of Regional Constant Quality House Prices," Journal of Urban Economics, Elsevier, vol. 39(2), pages 209-215, March. [Downloadable!] (restricted)
  15. Yannis Ioannides, 2001. "Interactive Property Valuations," Discussion Papers Series, Department of Economics, Tufts University 0102, Department of Economics, Tufts University. [Downloadable!]
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  16. Ioannides, Yannis M., 2002. "Residential neighborhood effects," Regional Science and Urban Economics, Elsevier, vol. 32(2), pages 145-165, March. [Downloadable!] (restricted)
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  17. Manski, Charles F, 1993. "Identification of Endogenous Social Effects: The Reflection Problem," Review of Economic Studies, Blackwell Publishing, vol. 60(3), pages 531-42, July. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Lynne Pepall & Daniel Richards, 2000. "Merger Wars: Bidding for Complementary Assets," Discussion Papers Series, Department of Economics, Tufts University 0020, Department of Economics, Tufts University. [Downloadable!]
  2. Katarzyna Ostasiewicz & Michal H. Tyc & Piotr Goliczewski & Piotr Magnuszewski & Andrzej Radosz & Jan Sendzimir, 2006. "Integrating economic and psychological insights in binary choice models with social interactions," Quantitative Finance Papers physics/0609170, arXiv.org. [Downloadable!]
  3. Jeffrey Zabel & Katherine Kiel, 2004. "Location, Location, Location: The 3L Approach to House Price Determination," Working Papers 04-06, Center for Economic Studies, U.S. Census Bureau. [Downloadable!]
    Other versions:
  4. repec:att:wimass:192042 is not listed on IDEAS
  5. repec:att:wimass:192055 is not listed on IDEAS
  6. Duebel, Hans-Joachim & Brzeski, W. Jan & Hamilton, Ellen, 2006. "Rental choice and housing policy realignment in transition : post-privatization challenges in the Europe and Central Asia region," Policy Research Working Paper Series 3884, The World Bank. [Downloadable!]
  7. repec:att:wimass:192031 is not listed on IDEAS
  8. Patrick Bayer & Stephen L. Ross, 2006. "Identifying Individual and Group Effects in the Presence of Sorting: A Neighborhood Effects Application," Working papers 2006-13, University of Connecticut, Department of Economics, revised Jan 2009. [Downloadable!]
    Other versions:
  9. Yannis M. Ioannides, 1999. "Residential Neighborhood Effects," Discussion Papers Series, Department of Economics, Tufts University 9912, Department of Economics, Tufts University. [Downloadable!]
    Other versions:
  10. William A. Brock & Steven N. Durlauf, 2003. "Multinomial Choice with Social Interactions," NBER Technical Working Papers 0288, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  11. repec:att:wimass:1920512 is not listed on IDEAS
  12. Martijn I. Dröes & Wolter H.J. Hassink, 2009. "Sale Price Expectations and Mortgage Commitment: Inaccuracy versus Price Setting Behaviour," Working Papers 09-24, Utrecht School of Economics. [Downloadable!]
  13. Yannis M Ioannides & Jeffrey E Zabel, 2002. "Interactions, Neighborhood Selection, and Housing Demand," Working Papers 02-19, Center for Economic Studies, U.S. Census Bureau. [Downloadable!]
    Other versions:
  14. Eric Maurin & Julie Moschion, 2006. "The social multiplier and labour market participation of mothers," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00117042_v1, HAL. [Downloadable!]
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  15. Daniel Richards, 2004. "Price Discrimination and the Long Boom," Discussion Papers Series, Department of Economics, Tufts University 0419, Department of Economics, Tufts University. [Downloadable!]
  16. Giulio Zanella, 2004. "Social Interactions and Economic Behavior," Department of Economics University of Siena 441, Department of Economics, University of Siena. [Downloadable!]
  17. Ethan Cohen-Cole, 2005. "Resolving the Identification Problem in Linear Social Interactions Models: Modeling with Between-Group Spillovers," Others 0501001, EconWPA. [Downloadable!]
  18. Sharada Vadali, 2008. "Toll roads and economic development: exploring effects on property values," The Annals of Regional Science, Springer, vol. 42(3), pages 591-620, September. [Downloadable!] (restricted)
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