Tiebout Sorting, Social Multipliers and the Demand for School Quality

43 Pages Posted: 18 Sep 2004

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

Date Written: June 2004

Abstract

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.

Keywords: Tiebout sorting, neighborhood stratification, social multiplier, school quality, education demand, capitalization, neighborhood choice, general equilibrium

JEL Classification: I20, H41, R21

Suggested Citation

Bayer, Patrick J. and Ferreira, Fernando V. and McMillan, Robert, Tiebout Sorting, Social Multipliers and the Demand for School Quality (June 2004). Available at SSRN: https://ssrn.com/abstract=592157 or http://dx.doi.org/10.2139/ssrn.592157

Patrick J. Bayer

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 (Contact Author)

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)

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