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

  • Yannis M. Ioannides

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.

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Paper provided by Department of Economics, Tufts University in its series Discussion Papers Series, Department of Economics, Tufts University with number 0724.

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Date of creation: 2008
Date of revision:
Handle: RePEc:tuf:tuftec:0724
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  1. 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.
  2. 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.
  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. 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.
  5. 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.
  6. Ekeland, Ivar & Heckman, James J. & Nesheim, Lars, 2003. "Identification and Estimation of Hedonic Models," IZA Discussion Papers 853, Institute for the Study of Labor (IZA).
  7. 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 966-91, October.
  8. Manski, C.F., 1991. "Identification of Endogenous Social Effects: the Reflection Problem," Working papers 9127, Wisconsin Madison - Social Systems.
  9. 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.
  10. Lars Nesheim, 2004. "Equilibrium Sorting of Heterogeneous Consumers Across Locations," Econometric Society 2004 North American Summer Meetings 337, Econometric Society.
  11. Kremer, M., 1996. "How Much Does Sorting Increase Inequality?," Working papers 96-18, Massachusetts Institute of Technology (MIT), Department of Economics.
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