Are All Homeowners Willing to Pay for Better Schools? – Evidence From a Finite Mixture Model Approach

The Journal of Real Estate Finance and Economics, May 2019, Volume 58, Issue 4, pp 638–655

Posted: 24 Aug 2019

See all articles by Chun Kuang

Chun Kuang

East Carolina University - Department of Economics; University of International Business and Economics (UIBE) - School of Banking and Finance

Jeeyoung Hwang

Independent

Date Written: May 22, 2019

Abstract

School quality indicators such as student test scores have been shown to be capitalized into the value of local homes. The presence of households with different preferences for education implies that the implicit price of improvements in school quality might vary even within a region. In this paper, we employ a finite mixture (FMM) to capture unobserved heterogeneity in household preferences. Using school quality and residential property sales data from Pitt County, North Carolina, we find evidence of two subpopulations of houses, where the prices for one group are virtually invariant to school quality. Consistent with recent research by Davis et al. (2017) these results indicate that heterogeneous valuation of educational quality by households with different socio-economic backgrounds should be taken into consideration when devising policies targeted at the local level.

Keywords: Home price premium; Heterogeneity; Finite mixture model; School quality

JEL Classification: D12; I25; L10;R21

Suggested Citation

Kuang, Chun and Hwang, Jeeyoung, Are All Homeowners Willing to Pay for Better Schools? – Evidence From a Finite Mixture Model Approach (May 22, 2019). The Journal of Real Estate Finance and Economics, May 2019, Volume 58, Issue 4, pp 638–655. Available at SSRN: https://ssrn.com/abstract=3441387

Chun Kuang

East Carolina University - Department of Economics ( email )

Brewster Building
Greenville, NC 27858
United States

HOME PAGE: http://chunkuang.webs.com/

University of International Business and Economics (UIBE) - School of Banking and Finance ( email )

No.10, Huixindong Street
Chaoyang District
Beijing, 100029
China

Jeeyoung Hwang (Contact Author)

Independent ( email )

No Address Available

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