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A Unified Framework for Measuring Preferences for Schools and Neighborhoods

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  • Patrick Bayer
  • Fernando Ferreira
  • Robert McMillan

Abstract

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 self-segregate on the basis of both race and education.

Suggested Citation

  • Patrick Bayer & Fernando Ferreira & Robert McMillan, 2007. "A Unified Framework for Measuring Preferences for Schools and Neighborhoods," NBER Working Papers 13236, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:13236
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    More about this item

    JEL classification:

    • H0 - Public Economics - - General
    • H4 - Public Economics - - Publicly Provided Goods
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • R0 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General
    • 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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