Thursday, August 30, 2007

How Much Will You Pay To Live Near People Like You?

I have posted a few times about empirical evidence about diversity. Studies show that diversity is hard work--social distrust appears to rise in diverse communities. Studies also seem to show, however, that decisionmaking improves when a diverse group of decisionmakers are involved. Today, I found a very interesting study that uses census data to qaunitify the increased housing costs that people arw willing to pay for homogeneity:

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.


Read it all here.

It would be interesting to compare these numbers to previous years. This seems to confirm the Robert Putnam analysis that there is social distrust that results from diversity--we appear to be willing to pay at least something to avoid it.

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