Working Paper: NBER ID: w13236
Authors: Patrick Bayer; Fernando Ferreira; Robert McMillan
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.
Keywords: preferences; schools; neighborhoods; residential choice; sorting
JEL Codes: H0; H4; H72; R0; R21; R31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| average performance of the local school (I21) | house prices (R31) |
| sociodemographic measures (J19) | willingness to pay for more educated and wealthier neighbors (R20) |
| neighborhood race (R23) | negative correlation between neighborhood race and housing prices (R23) |
| Black residents tend to live in lower-quality neighborhoods (R23) | negative correlation between neighborhood race and housing prices (R23) |
| households self-segregate based on both race and education (I24) | considerable heterogeneity in preferences for schools and neighbors (R20) |