Tiebout Sorting, Social Multipliers and the Demand for School Quality

57 Pages Posted: 28 Oct 2004 Last revised: 10 May 2012

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: November 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.

Suggested Citation

Bayer, Patrick J. and Ferreira, Fernando V. and McMillan, Robert, Tiebout Sorting, Social Multipliers and the Demand for School Quality (November 2004). NBER Working Paper No. w10871, Available at SSRN: https://ssrn.com/abstract=612073

Patrick J. Bayer (Contact Author)

Duke University - Department of Economics ( email )

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Fernando V. Ferreira

University of Pennsylvania - The Wharton School ( email )

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HOME PAGE: http://real.wharton.upenn.edu/~fferreir/

Robert McMillan

University of Toronto - Department of Economics ( email )

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Toronto, Ontario M5S 3G7
Canada
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416-978-6713 (Fax)

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