TY - JOUR AU - Bayer,Patrick AU - Ferreira,Fernando AU - McMillan,Robert TI - A Unified Framework for Measuring Preferences for Schools and Neighborhoods JF - National Bureau of Economic Research Working Paper Series VL - No. 13236 PY - 2007 Y2 - July 2007 UR - http://www.nber.org/papers/w13236 L1 - http://www.nber.org/papers/w13236.pdf N1 - Author contact info: Patrick Bayer Department of Economics Duke University 213 Social Sciences Durham, NC 27708 Tel: 919/660-1832 E-Mail: patrick.bayer@duke.edu Fernando Ferreira The Wharton School University of Pennsylvania 1461 Steinberg - Dietrich Hall 3620 Locust Walk Philadelphia, PA 19104-6302 Tel: 215/898-7181 Fax: 215/573-2220 E-Mail: fferreir@wharton.upenn.edu Robert McMillan University of Toronto Department of Economics 150 St. George Street Toronto, ON M5S 3G7 CANADA Tel: 416/978-4190 Fax: 416/978-6713 E-Mail: mcmillan@chass.utoronto.ca AB - 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. ER -