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Neighbourhood Measures: Quantifying the Effects of Neighbourhood Externalities


  • Ben Jensen

    (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)

  • Mark N. Harris

    (Department of Econometrics and Business Statistics, Monash University)


In recent years, analyses of neighbourhood externalities have grown with the perceived importance of their influence upon outcomes. Despite this growth, a clear understanding of the role of neighbourhoods in determining outcomes remains elusive. Various attempts have been made to quantify the role of neighbourhoods and limit problems of misspecification that have plagued this literature. Recent research suggests that neighbourhood proxies that measure characteristics similar to the dependent variable may better capture neighbourhood externalities. We explore variation in estimations including distinct neighbourhood proxies by estimating the influence of neighbourhood externalities upon youths' education expectations. Misspecification tests for normality and heteroscedasticity show particular neighbourhood proxies are more susceptible to misspecification. Monte-Carlo experiments show these neighbourhood proxies are also more likely to produce biased estimates if particular family characteristics are not fully captured. We find estimations including neighbourhood proxies measuring characteristics proximate to youths' education are less likely to suffer misspecifications. We also find that different geographic definitions of neighbourhoods can lead to erroneous findings, particularly considering variation in school quality.

Suggested Citation

  • Ben Jensen & Mark N. Harris, 2003. "Neighbourhood Measures: Quantifying the Effects of Neighbourhood Externalities," Melbourne Institute Working Paper Series wp2003n04, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  • Handle: RePEc:iae:iaewps:wp2003n04

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    1. repec:nos:voprob:2013:i:4:p:188-246 is not listed on IDEAS
    2. Gordey A. Yasterbov & Alexey R. Bessudnov & Marina A. Pinskaya & Sergey G. Kosaretsky, 2014. "Contextualizing Academic Performance In Russian Schools: School Characteristics, The Composition Of Student Body And Local Deprivation," HSE Working papers WP BRP 55/SOC/2014, National Research University Higher School of Economics.
    3. Yamamura, Eiji, 2012. "Social capital, household income, and preferences for income redistribution," European Journal of Political Economy, Elsevier, vol. 28(4), pages 498-511.
    4. Yamamura, Eiji, 2011. "Effect of social capital on income distribution preferences: comparison of neighborhood externality between high- and low-income households," MPRA Paper 32557, University Library of Munich, Germany.

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