Schools and Location: Tiebout, Alonso, and Government Policy
An important element in considering school finance policies is that households are not passive. Instead they respond to policies with a combination of modified residential choice and political choice of tax levels. The highly stylized decision models of most existing analyses, however, lead to conerns about the policy evaluations. In our general equilibrium model of residential location and community choice, households base optimizing decisions on commuting costs, school quality, and land rents. With both centralized and decentralized employment, the resulting equilibrium has heterogeneous communities in terms of income and tastes for schools. This model is used to analyze a series of conventional policy experiments, including school district consolidation, district power utilization, and different equalization devices. The important conclusion is that welfare falls for all families with the restrictions in choice that are implied by these approaches.
We benefitted from comments and suggestions by Dennis Epple, Ed Glaeser, Ken Judd, Charles Leung, Lance Lochner, Michael Wolkoff and participants at several conferences. This research was funded by a grants from the Packard Humanities Institute. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.
Hanushek, Eric and Kuzey Yilmaz. "The Complementarity of Tiebout and Alonso." Journal of Housing Economics 16, 2 (June 2007): 243-261.