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Tiebout Sorting, Social Multipliers and the Demand for School Quality


Patrick J. Bayer


Duke University - Department of Economics; National Bureau of Economic Research (NBER)

Fernando V. Ferreira


University of Pennsylvania - The Wharton School

Robert McMillan


University of Toronto - Department of Economics

November 2004

NBER Working Paper No. w10871

Abstract:     
In many theoretical public finance models, school quality plays a central role as a determinant of household location choices and in turn, of neighborhood stratification. In contrast, the recent empirical literature has almost universally concluded that the direct effect of school quality on housing demand is weak, a conclusion that is robust across a variety of research designs. Using an equilibrium model of residential sorting, this paper closes the gap between these literatures, providing clear evidence that the full effect of school quality on residential sorting is significantly larger than the direct effect -- four times as great for education stratification, twice for income stratification. This is due to a strong social multiplier associated with heterogeneous preferences for peers and neighbors; initial changes in school quality set in motion a process of re-sorting on the basis of neighborhood characteristics that reinforces itself, giving rise to substantially larger stratification effects.

Number of Pages in PDF File: 57

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Date posted: October 28, 2004  

Suggested Citation

Bayer, Patrick J. and Ferreira, Fernando V. and McMillan, Robert, Tiebout Sorting, Social Multipliers and the Demand for School Quality (November 2004). NBER Working Paper No. w10871. Available at SSRN: http://ssrn.com/abstract=612073

Contact Information

Patrick J. Bayer (Contact Author)
Duke University - Department of Economics ( email )
Durham, NC 27708-0204
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Fernando V. Ferreira
University of Pennsylvania - The Wharton School ( email )
3641 Locust Walk
Philadelphia, PA 19104-6365
United States
215-898-7181 (Phone)
215-573-2220 (Fax)
HOME PAGE: http://real.wharton.upenn.edu/~fferreir/

Robert McMillan
University of Toronto - Department of Economics ( email )
150 St. George Street
Toronto, Ontario M5S 3G7
Canada
416-978-4190 (Phone)
416-978-6713 (Fax)
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