The Demand for Educational Quality: Combining a Median Voter and Hedonic House Price Model

Abstract

Communities differ in both the bundle of amenities offered to residents and the implicit price of these amenities. Thus, households are faced with a choice of which bundle to select when they select their residence. This choice implies households make tradeoffs among the amenities; that is, the amenities are substitutes or complements. We focus on estimating the demand for one of the most important amenities - public school quality. We use transaction prices from the housing market and the hedonic house price model to generate the implicit prices of community amenities. The median voter model is used to estimate the income and price elasticities of demand for educational quality. We find that the own price elasticity of demand for schooling is about -0.5 and the income elasticity of demand is about 0.5. New findings include estimates of a set of cross-price elasticities of demand for school quality. We find that a community's income level, percentage white households, and level of public safety are substitutes for school quality.