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A Unified Framework for Estimating Preferences for Schools and Neighborhoods

Author

Listed:
  • Patrick Bayer

    () (Economic Growth Center, Yale University)

  • Fernando Ferreira
  • Robert McMillan

Abstract

This paper sets out a framework for estimating household preferences over a broad range of housing and neighborhood characteristics, some of which are determined by the way that households sort in the housing market. This framework brings together the treatment of heterogeneity and selection that has been the focus of the traditional discrete choice literature with a clear strategy for dealing with the correlation of unobserved neighborhood quality with both school quality and neighborhood sociodemographics. We estimate the model using rich data on a large metropolitan area, drawn from a restricted version of the Census. The estimates indicate that, on average, households are willing to pay an additional one percent in house prices -- substantially lower than in prior work -- when the average performance of the local school is increased by 5 percent. There is also evidence of considerable preference heterogeneity. We also show that the full capitalization of school quality into housing prices is typically 70-75 percent greater than the direct effect as the result of a social multiplier, neglected in the prior literature, whereby increases in school quality also raises prices by attracting households with more education and income to the corresponding neighborhood.

Suggested Citation

  • Patrick Bayer & Fernando Ferreira & Robert McMillan, 2003. "A Unified Framework for Estimating Preferences for Schools and Neighborhoods," Working Papers 872, Economic Growth Center, Yale University.
  • Handle: RePEc:egc:wpaper:872
    as

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    File URL: http://www.econ.yale.edu/growth_pdf/cdp872.pdf
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    References listed on IDEAS

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    Cited by:

    1. 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, vol. 96(4), pages 1333-1350, September.

    More about this item

    Keywords

    Capitalization; Local Public Goods; School Quality; Discrete Choice Models; Hedonic Price Regression; Education Demand;

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • H0 - Public Economics - - General
    • H4 - Public Economics - - Publicly Provided Goods
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • I2 - Health, Education, and Welfare - - Education
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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