Pricing Neighborhoods

45 Pages Posted: 13 Jun 2023

See all articles by Sadegh S. M. Eshaghnia

Sadegh S. M. Eshaghnia

University of Chicago - Department of Economics

James J. Heckman

University of Chicago - Department of Economics; National Bureau of Economic Research (NBER); American Bar Foundation; Institute for the Study of Labor (IZA); CESifo (Center for Economic Studies and Ifo Institute)

Goya Razavi

University of Chicago, Harris School of Public Policy, Students

Multiple version iconThere are 3 versions of this paper

Date Written: June 12, 2023

Abstract

Education in Denmark is freely available. Despite near equal teacher salaries and per-pupil school expenditure across districts, there is substantial spatial heterogeneity in school quality as measured by teacher quality and student test scores. We argue that this is due to sorting of teachers and students across neighborhoods. We develop and apply multiple methods for identifying parental evaluations of measured school quality in the presence of strong neighborhood sorting. There is strong concordance in the estimates across diverse methodologies. We estimate a willingness to pay of about 3% more for a house with average characteristics when test scores are one standard deviation above the mean. Controlling for selection into neighborhoods only slightly reduces our estimates. Given that school quality, as measured by monetary resources, is equalized across all neighborhoods, payments for school quality embodied in housing prices are in fact payments for peer, teacher, and neighborhood quality. This evidence challenges the appropriateness of the current emphasis in the literature on Tiebout-based models of neighborhood choice that stress sorting on parental income in order to finance the local public good of school quality. Rather, a model of neighborhood choice to select neighbor and peer quality is more appropriate. Our evidence is consistent with evidence that cash expenditures on classrooms have weak effects on child achievement.

Keywords: hedonic valuation, amenities, residential sorting, peer effects

JEL Classification: H0, H4, H7, I2, R0, R2, R3

Suggested Citation

Eshaghnia, Sadegh S. M. and Heckman, James J. and Razavi, Goya, Pricing Neighborhoods (June 12, 2023). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2023-80, Available at SSRN: https://ssrn.com/abstract=4477536 or http://dx.doi.org/10.2139/ssrn.4477536

Sadegh S. M. Eshaghnia

University of Chicago - Department of Economics ( email )

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James J. Heckman (Contact Author)

University of Chicago - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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American Bar Foundation

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Institute for the Study of Labor (IZA)

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CESifo (Center for Economic Studies and Ifo Institute)

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Goya Razavi

University of Chicago, Harris School of Public Policy, Students ( email )

Chicago, IL
United States

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