A Unified Framework for Measuring Preferences for Schools and Neighborhoods

Journal of Political Economy, Vol. 115, No. 4, 2007

US Census Bureau Center for Economic Studies Paper No. CES-WP- 07-27

Posted: 20 Dec 2007

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

Multiple version iconThere are 3 versions of this paper

Date Written: October 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 residential choice model addressing the endogeneity of school and neighborhood characteristics. 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 1 percent more in house prices - substantially lower than previous estimates - when the average performance of the local school increases by 5 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 percent black 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, with households preferring 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 (October 2007). Journal of Political Economy, Vol. 115, No. 4, 2007, US Census Bureau Center for Economic Studies Paper No. CES-WP- 07-27 , Available at SSRN: https://ssrn.com/abstract=1076603

Patrick J. Bayer (Contact Author)

Duke University - Department of Economics ( email )

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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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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
416-978-4190 (Phone)
416-978-6713 (Fax)

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