A Unified Framework for Measuring Preferences for Schools and Neighborhoods

Journal of Political Economy, Vol. 115, No. 4, 2007

US Census Bureau Center for Economic Studies Paper No. CES-WP- 07-27

Posted: 20 Dec 2007

See all articles by Patrick J. Bayer

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

Multiple version iconThere are 3 versions of this paper

Date Written: October 2007

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 residential choice model addressing the endogeneity of school and neighborhood characteristics. 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 1 percent more in house prices - substantially lower than previous estimates - when the average performance of the local school increases by 5 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 percent black 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, with households preferring to self-segregate on the basis of both race and education.

Suggested Citation

Bayer, Patrick J. and Ferreira, Fernando V. and McMillan, Robert, A Unified Framework for Measuring Preferences for Schools and Neighborhoods (October 2007). Journal of Political Economy, Vol. 115, No. 4, 2007, US Census Bureau Center for Economic Studies Paper No. CES-WP- 07-27 , Available at SSRN: https://ssrn.com/abstract=1076603

Patrick J. Bayer (Contact Author)

Duke University - Department of Economics ( email )

213 Social Sciences Building
Box 90097
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)

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
671
PlumX Metrics