How much will you pay to live near people like you?

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.

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How much will you pay to live near people like you?
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