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
University of Toronto - Department of Economics
NBER Working Paper No. w10871
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: 57working papers series
Date posted: October 28, 2004
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