Angela Zheng, New York University

Residential Sorting, School Choice, and Inequality
Tuesday, 21 January 2020 - 11:30 am to 1:00 pm
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Catherine Deri-Armstrong
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Free of charge
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This paper studies how the expansion of school choice affects housing markets. First, I use an event study that exploits time variation in the entry of school choice to show that, on average, school choice decreases the willingness to pay for a standard deviation increase in school quality by 6 percentage points, or around $15,000. Second, I develop a structural model featuring heterogeneous agents and residential choice to assess the effects of school choice on opportunity. While school choice is seen as a way to increase opportunity for low-income families, the model shows that school choice leads to gentrification of poorer neighbourhoods, implying that school choice does not necessarily improve outcomes for all low-income households. Intuitively, breaking the link between residence and school causes higher-income families to use school choice and move into neighbourhoods with poor performing schools, driving up house prices. Benefits from school choice programs are thus counterbalanced by a higher cost of living. There is a tradeoff between expanding school choice and benefiting high-ability children, versus making parents of low-ability children, who do not utilize school choice, worse off. Furthermore, I find that the majority of low-income families prefer that a choice school does not open in their neighbourhood, so that their costs-of-living do not change.