A Unified Framework for Measuring Preferences for Schools and Neighborhoods

51 Pages Posted: 9 Jul 2007  

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

Multiple version iconThere are 3 versions of this paper

Date Written: July 2007

Abstract

This paper develops a comprehensive framework for estimating household preferences for school and neighborhood attributes in the presence of sorting. It embeds a boundary discontinuity design in a heterogeneous model of residential choice to address the endogeneity of school and neighborhood attributes. The model is estimated using restricted-access Census data from a large metropolitan area, yielding a number of new results. First, households are willing to pay less than one percent more in house prices -- substantially lower than previous estimates -- when the average performance of the local school increases by five percent. Second, much of the apparent willingness to pay for more educated and wealthier neighbors is explained by the correlation of these sociodemographic measures with unobserved neighborhood quality. Third, neighborhood race is not capitalized directly into housing prices; instead, the negative correlation of neighborhood race and housing prices is due entirely to the fact that blacks live in unobservably lower quality neighborhoods. Finally, there is considerable heterogeneity in preferences for schools and neighbors: in particular, we find that households prefer to self-segregate on the basis of both race and education.

Suggested Citation

Bayer, Patrick J. and Ferreira, Fernando V. and McMillan, Robert, A Unified Framework for Measuring Preferences for Schools and Neighborhoods (July 2007). NBER Working Paper No. w13236. Available at SSRN: https://ssrn.com/abstract=999031

Patrick J. Bayer (Contact Author)

Duke University - Department of Economics ( email )

213 Social Sciences Building
Box 90097
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National Bureau of Economic Research (NBER)

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Fernando V. Ferreira

University of Pennsylvania - The Wharton School ( email )

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Philadelphia, PA 19104-6365
United States
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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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