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May/June 2010, 
Vol. 92, No. 3
Posted 2010-05-03

Nonlinear Effects of School Quality on House Prices

by Abbigail J. Chiodo, Rubén Hernández-Murillo, and Michael T. Owyang

The authors reexamine the relationship between quality of public schools and house prices and find it to be nonlinear. Unlike most studies in the literature, they find that the price premium parents must pay to buy a house in an area associated with a better school increases as school quality increases. This is true even after controlling for neighborhood characteristics, such as the racial composition of neighborhoods, which is also capitalized into house prices. In contrast to previous studies that use the boundary discontinuity approach, they find that the price premium from school quality remains substantially large, particularly for neighborhoods associated with high-quality schools.