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Full Solution of an Endogenous Sorting Model with Contextual and Income Effects

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  • Yannis M. Ioannides

Abstract

The paper solves themselves into neighborhoods because they value average schooling among adults in the neighborhood. The paper extends results by Nesheim (2002) but with the addition of income effects on neighborhood choice. Individuals value housing, non-housing consumption, and expected schooling of their children. The latter depends on parental schooling, on a child's ability, and on average schooling in the neighborhood. Neighborhood choice trades off non-housing consumption with children's expected schooling. Individuals choose neighborhoods recongnizing that their neighbors' characteristics are correlated with their own. The equilibrium housing price is associated with endogenous sorting and also allows computation of a neighborhood distributions of income, schooling and other variables of interest.

Suggested Citation

  • Yannis M. Ioannides, 2008. "Full Solution of an Endogenous Sorting Model with Contextual and Income Effects," Discussion Papers Series, Department of Economics, Tufts University 0724, Department of Economics, Tufts University.
  • Handle: RePEc:tuf:tuftec:0724
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    File URL: http://ase.tufts.edu/econ/research/documents/2008/ioannidesSorting.pdf
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    References listed on IDEAS

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    1. Brock, William A. & Durlauf, Steven N., 2001. "Interactions-based models," Handbook of Econometrics,in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 5, chapter 54, pages 3297-3380 Elsevier.
    2. Ivar Ekeland & James J. Heckman & Lars Nesheim, 2004. "Identification and Estimation of Hedonic Models," Journal of Political Economy, University of Chicago Press, vol. 112(S1), pages 60-109, February.
    3. Yannis Ioannides & Giulio Zanella, 2008. "Searching for the Best Neighborhood: Mobility and Social Interactions," Discussion Papers Series, Department of Economics, Tufts University 0720, Department of Economics, Tufts University.
    4. Dennis Epple & Holger Sieg, 1999. "Estimating Equilibrium Models of Local Jurisdictions," Journal of Political Economy, University of Chicago Press, vol. 107(4), pages 645-681, August.
    5. Epple, Dennis & Platt, Glenn J., 1998. "Equilibrium and Local Redistribution in an Urban Economy when Households Differ in both Preferences and Incomes," Journal of Urban Economics, Elsevier, vol. 43(1), pages 23-51, January.
    6. Lars Nesheim, 2002. "Equilibrium sorting of heterogeneous consumers across locations: theory and empirical implications," CeMMAP working papers CWP08/02, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    7. Ioannides, Yannis M. & Zabel, Jeffrey E., 2008. "Interactions, neighborhood selection and housing demand," Journal of Urban Economics, Elsevier, vol. 63(1), pages 229-252, January.
    8. repec:dau:papers:123456789/6486 is not listed on IDEAS
    9. Charles F. Manski, 1993. "Identification of Endogenous Social Effects: The Reflection Problem," Review of Economic Studies, Oxford University Press, vol. 60(3), pages 531-542.
    10. Lars Nesheim, 2004. "Equilibrium Sorting of Heterogeneous Consumers Across Locations," Econometric Society 2004 North American Summer Meetings 337, Econometric Society.
    11. Michael Kremer, 1997. "How Much does Sorting Increase Inequality?," The Quarterly Journal of Economics, Oxford University Press, vol. 112(1), pages 115-139.
    12. Evans, William N & Oates, Wallace E & Schwab, Robert M, 1992. "Measuring Peer Group Effects: A Study of Teenage Behavior," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 966-991, October.
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    Cited by:

    1. Semih Tumen, 2016. "A theory of intra-firm group design," Journal of Productivity Analysis, Springer, vol. 45(1), pages 89-102, February.

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