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A Unified Framework for Measuring Preferences for Schools and Neighborhoods

  • Patrick Bayer
  • Fernando Ferreira
  • Robert McMillan

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 selfsegregate on the basis of both race and education.

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File URL: ftp://ftp2.census.gov/ces/wp/2007/CES-WP-07-27.pdf
File Function: First version, 2007
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Paper provided by Center for Economic Studies, U.S. Census Bureau in its series Working Papers with number 07-27.

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Length: 51 pages
Date of creation: Oct 2007
Date of revision:
Handle: RePEc:cen:wpaper:07-27
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  1. David M. Cutler & Edward L. Glaeser & Jacob L. Vigdor, 1999. "The Rise and Decline of the American Ghetto," Journal of Political Economy, University of Chicago Press, vol. 107(3), pages 455-506, June.
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  13. 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, vol. 1(1), pages 5-50.
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