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Tiebout Sorting, Social Multipliers and the Demand for School Quality

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  • Patrick Bayer
  • Fernando Ferreira
  • Robert McMillan

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.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10871.

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Date of creation: Nov 2004
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Handle: RePEc:nbr:nberwo:10871

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  1. Epple, Dennis & Romano, Richard E, 1998. "Competition between Private and Public Schools, Vouchers, and Peer-Group Effects," American Economic Review, American Economic Association, American Economic Association, vol. 88(1), pages 33-62, March.
  2. Benabou, Roland, 1993. "Workings of a City: Location, Education, and Production," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 108(3), pages 619-52, August.
  3. Dennis Epple & David Figlio & Richard Romano, 2000. "Competition Between Private and Public Schools: Testing Stratification and Pricing Predictions," NBER Working Papers 7956, National Bureau of Economic Research, Inc.
  4. Holger Sieg & V. Kerry Smith & H. Spencer Banzhaf & Randy Walsh, . "Estimating the General Equilibrium Benefits of Large Changes in Spatially Delineated Public Goods," GSIA Working Papers, Carnegie Mellon University, Tepper School of Business 2003-07, Carnegie Mellon University, Tepper School of Business.
  5. Jesse M. Rothstein, 2006. "Good Principals or Good Peers? Parental Valuation of School Characteristics, Tiebout Equilibrium, and the Incentive Effects of Competition among Jurisdictions," American Economic Review, American Economic Association, American Economic Association, vol. 96(4), pages 1333-1350, September.
  6. Sandra E. Black, 1997. "Do better schools matter? Parental valuation of elementary education," Research Paper, Federal Reserve Bank of New York 9729, Federal Reserve Bank of New York.
  7. Dennis Epple & Holger Sieg, 1999. "Estimating Equilibrium Models of Local Jurisdictions," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 107(4), pages 645-681, August.
  8. 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, University of Chicago Press, vol. 115(4), pages 588-638, 08.
  9. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, Econometric Society, vol. 63(4), pages 841-90, July.
  10. Nechyba, Thomas J, 1999. " School Finance Induced Migration and Stratification Patterns: The Impact of Private School Vouchers," Journal of Public Economic Theory, Association for Public Economic Theory, Association for Public Economic Theory, vol. 1(1), pages 5-50.
  11. Dennis Epple & Thomas Romer & Holger Sieg, 2001. "Interjurisdictional Sorting and Majority Rule: An Empirical Analysis," Econometrica, Econometric Society, Econometric Society, vol. 69(6), pages 1437-1465, November.
  12. Patrick Bayer & Robert McMillan & Kim Rueben, 2004. "An Equilibrium Model of Sorting in an Urban Housing Market," NBER Working Papers 10865, National Bureau of Economic Research, Inc.
  13. Daniel McFadden, 1977. "Modelling the Choice of Residential Location," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 477, Cowles Foundation for Research in Economics, Yale University.
  14. Caroline M. Hoxby, 2000. "Does Competition among Public Schools Benefit Students and Taxpayers?," American Economic Review, American Economic Association, American Economic Association, vol. 90(5), pages 1209-1238, December.
  15. Walsh, Randy, 2007. "Endogenous open space amenities in a locational equilibrium," Journal of Urban Economics, Elsevier, vol. 61(2), pages 319-344, March.
  16. Fernandez, Raquel & Rogerson, Richard, 1996. "Income Distribution, Communities, and the Quality of Public Education," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 111(1), pages 135-64, February.
  17. Fernando Ferreira, 2008. "You Can Take it With You: Proposition 13 Tax Benefits, Residential Mobility, and Willingness to Pay for Housing Amenities," Working Papers, Center for Economic Studies, U.S. Census Bureau 08-15, Center for Economic Studies, U.S. Census Bureau.
  18. Julie Berry Cullen & Brian A. Jacob & Steven Levitt, 2003. "The Effect of School Choice on Student Outcomes: Evidence from Randomized Lotteries," NBER Working Papers 10113, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Stephanie Riegg Cellini & Fernando Ferreira & Jesse Rothstein, 2008. "The Value of School Facilities: Evidence from a Dynamic Regression Discontinuity Design," Working Papers, Princeton University, Department of Economics, Center for Economic Policy Studies. 1101, Princeton University, Department of Economics, Center for Economic Policy Studies..
  2. Fack, Gabrielle & Grenet, Julien, 2010. "When do better schools raise housing prices? Evidence from Paris public and private schools," Journal of Public Economics, Elsevier, Elsevier, vol. 94(1-2), pages 59-77, February.
  3. Patrick Bayer & Fernando Ferreira & Robert McMillan, 2007. "A Unified Framework for Measuring Preferences for Schools and Neighborhoods," Working Papers, Center for Economic Studies, U.S. Census Bureau 07-27, Center for Economic Studies, U.S. Census Bureau.
  4. Wada, Roy & Herbert, Zahirovic-Herbert, 2009. "Distribution of Demand for School Quality: Evidence from Quantile Regression," MPRA Paper 18078, University Library of Munich, Germany.
  5. Theodore M. Crone, 2006. "Capitalization of the quality of local public schools: what do home buyers value?," Working Papers 06-15, Federal Reserve Bank of Philadelphia.
  6. Eric J. Brunner & Jon Sonstelie, 2006. "California's School Finance Reform: An Experiment in Fiscal Federalism," Working papers, University of Connecticut, Department of Economics 2006-09, University of Connecticut, Department of Economics.
  7. Corey Lang, 2012. "The Dynamics of House Price Capitalization and Locational Sorting: Evidence from Air Quality Changes," Working Papers, Center for Economic Studies, U.S. Census Bureau 12-22, Center for Economic Studies, U.S. Census Bureau.
  8. Yannis M. Ioannides, 2010. "Neighborhood Effects and Housing," Discussion Papers Series, Department of Economics, Tufts University, Department of Economics, Tufts University 0747, Department of Economics, Tufts University.
  9. Brunner, Eric J. & Cho, Sung-Woo & Reback, Randall, 2012. "Mobility, housing markets, and schools: Estimating the effects of inter-district choice programs," Journal of Public Economics, Elsevier, Elsevier, vol. 96(7), pages 604-614.
  10. Eric J. Brunner & Jennifer Imazeki, 2006. "Tiebout Choice and the Voucher," Working papers, University of Connecticut, Department of Economics 2006-10, University of Connecticut, Department of Economics.
  11. Randall Reback, 2004. "Demand (and Supply) in an Inter-District Public School Choice Program," Working Papers, Barnard College, Department of Economics 0501, Barnard College, Department of Economics, revised Feb 2006.
  12. Leigh L. Linden & Jonah E. Rockoff, 2006. "There Goes the Neighborhood? Estimates of the Impact of Crime Risk on Property Values From Megan's Laws," NBER Working Papers 12253, National Bureau of Economic Research, Inc.
  13. Oliver Himmler, 2009. "The Effects of School Competition on Academic Achievement and Grading Standards," CESifo Working Paper Series 2676, CESifo Group Munich.
  14. Francisco Gallego & Andrés Hernando, 2009. "School Choice in Chile: Looking at the Demand Side," Documentos de Trabajo, Instituto de Economia. Pontificia Universidad Católica de Chile. 356, Instituto de Economia. Pontificia Universidad Católica de Chile..
  15. Thomas Cornelissen & Uwe Jirjahn & Georgi Tsertsvadze, 2008. "Parental Background and Earnings: German Evidence on Direct and Indirect Relationship," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 228(5+6), pages 554-572, December.

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