Do Households Prefer Small School Districts? A Natural Experiment
47 Pages Posted: 25 Aug 2008 Last revised: 17 Apr 2012
Date Written: Sept 1, 2009
Perennial discontent with public education is a constant source of proposed reforms. One such reform is to break up large urban school districts, moving to a more efficient scale, increasing public school choices, and promoting school competition. This paper tests whether households expect these effects and whether they value them. It does so by studying the effect on real estate prices of a natural experiment provided by the surprise breakup of the Los Angeles Unified School District (LAUSD) into 11 minidistricts in April 2000. We estimate households' reaction to this reform in a difference-in-difference context which controls for any unobserved spatial effects unaffected by the announcement.
We find consistent evidence that households valued this decentralization, with a 1-5 percentage point increase in housing values in the LAUSD area over pre-existing trends, com-pared to control districts. The effect is highest in wealthier neighborhoods, but otherwise homo-genous within the LAUSD area. The findings are robust to a variety of estimation strategies. The results suggest that households believe that decentralization would make schools more effective, either by returning to more efficient economies of scale or by providing more choice and more school competition. They also suggest that households value school effectiveness. Finally, they speak to a recent literature on parents' perceptions of education, suggesting that they do respond to clear, easily-observed signals of effectiveness (or anticipated shocks to effectiveness).
Keywords: School Finance, School Decentralization, Valuation of Education, Hedonics
JEL Classification: I2, R21
Suggested Citation: Suggested Citation