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How Much Will You Pay To Live Near People Like You

Unsurprisingly, increases in household income and education also lead to a greater willingness to pay for better schools.
by Staff Writers
Durham NC (SPX) Sep 05, 2007
Using restricted-access Census data, a new study examines a quarter-million households on a block-by-block basis to yield new results about the correlation between household attributes and school quality. The researchers find that, conditional on income, households prefer to self-segregate on the basis of both race and education.

"Economists have long been interested in estimating household preferences for school and neighborhood attributes, given their relevance to many central issues in applied economics," write Patrick Bayer (Duke University and NBER), Fernando Ferreira (University of Pennsylvania), and Robert McMillan (University of Toronto and NBER) in the forthcoming issue of the Journal of Political Economy.

Specifically, while all households prefer to live in higher-income neighborhoods, college-educated households are willing to pay $58 more per month than those without a college degree to live in a neighborhood that has 10 percent more college-educated households. In fact, the researchers find that households without a college degree would actually need compensating to live in a neighborhood with 10 percent more college-educated neighbors.

Similarly, blacks are willing to pay $98 more per month to live in a neighborhood that has 10 percent more black households, compared to a negative willingness to pay on the part of white households to live in a similar neighborhood. Perhaps unsurprisingly, increases in household income and education also lead to a greater willingness to pay for better schools.

"Our estimates suggest that the improvement in a school's quality would disproportionately attract more highly educated households to the neighborhood, in turn making the neighborhood even more attractive to higher-income, highly educated households, and raising prices further," the authors explain.

To correlate the quality of schools to household demographics and home prices, the researchers focus their attention on homes within 0.2 miles of a school zone boundary, in which children living in identical houses across the street from one another may attend different schools. From the middle of each block, the researchers located the closest "twin" Census block on the other side of the boundary.

They then assessed standardized test scores for both sides of the boundary. For the Census sample studied - which accounts for about 15 percent of the general population filling out the long form - test scores on one side of the boundary were 25 percent higher than on the "low" side, which is standard deviation. Accounting for average number of rooms and year built, the study finds that houses on the side with better standardized test scores cost an average of $18,719 more.

However, the researchers found only minimal evidence of the "seam" in monthly rent prices, suggesting that average test scores and neighborhood characteristics are reflected more fully in property values than rents.

The Journal of Political Economy has been presenting significant research and scholarship in economic theory and practice since its inception in 1892. JPE publishes analytical, interpretive, and empirical studies in traditional areas-monetary theory, fiscal policy, labor economics, development, micro- and macroeconomic theory, international trade and finance, industrial organization, and social economics. Bayer, Patrick, Fernando Ferreira, and Robert McMillan. "A Unified Framework for Measuring Preferences for Schools and Neighborhoods," Journal of Political Economy, 115:4.

related report

New Research Challenges Previous Knowledge About The Origins Of Urbanization
Ancient cities arose not by decree from a centralized political power, as was previously widely believed, but as the outgrowth of decisions made by smaller groups or individuals, according to a new study from researchers at Harvard University, the University of Cambridge, and the University of Edinburgh.

Published in the Aug. 31st Science, the research was led by Jason Ur, assistant professor of anthropology in the Faculty of Arts and Sciences at Harvard University, with Philip Karsgaard of the University of Edinburgh, and Joan Oates of the McDonald Institute for Archaeological Research of the University of Cambridge.

"The results of our work show that the existing models for the origins of ancient cities may in fact be flawed," says Ur. "Urbanism does not appear to have originated with a single, powerful ruler or political entity. Instead, it was the organic outgrowth of many groups coming together."

To understand patterns of population growth in the earliest urban areas, archaeologists surveyed the spatial distribution of artifacts at Tell Brak, located in northern Mesopotamia, in what is today northern Iraq and northeastern Syria. The researchers' work was based on observation of surface objects at the site, along with satellite imagery and Geographic Information Systems (GIS) spatial analysis. Surface artifacts included bits of broken pottery and other ancient garbage, which indicated to the archaeologists where the inhabitants of the city lived. In this survey, the patterns of distribution of these objects were examined over an 800 year period.

Excavation of Tell Brak has been conducted by researchers from the University of Cambridge since 1976. While archaeologists had been aware of the large scale of Tell Brak, they had previously concentrated on excavating and observing the more densely populated "central mound." This field survey has demonstrated that the city was much larger geographically than realized, and had also been populated by settlement clusters surrounding the "central mound."

According to the survey of distribution of artifacts, around 4200 BCE the "central mound" was suddenly surrounded by these clusters, suggesting immigration to the city. These clusters were separated from one another, indicating social distance among the groups, possibly because the social mechanisms that allow strangers to live together in an urban environment had not yet evolved. The patterns of settlement and distance from the "central mound" also signified autonomy from the political center of the city.

The theory of a singular leader as the catalyst for urbanization has been widely supported in part because it is reinforced by the story of Gilgamesh, who "built" the city of Uruk. Uruk, located in what is today southern Iraq, had been considered the world's oldest city. The field survey, along with recent related excavation by the University of Cambridge has shown that the urban development of Tell Brak was concurrent, or may have been earlier, than the development of Uruk.

"Ours is a largely urban society, and the nascent urbanization of Tell Brak tells us about the formation of the very first cities in the world," says Ur.

The research was funded by the British Academy, the McDonald Institute for Archaeological Research, the Society of Antiquaries, the Charlotte Bonham-Carter Charitable Trust, the University of Michigan and Harvard University.

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Not All Risk Is Created Equal
Ann Arbor MI (SPX) Aug 29, 2007
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