Does School Quality Matter? a Travel Cost Approach

DOES SCHOOL QUALITY MATTER? A TRAVEL COST APPROACH Jonathan Eyer Abstract Sol Price School of Public Although the majority of school districts in the United States as- Policy sign students to schools on the basis of geographic location, there University of Southern is increasing interest from parents and policy makers in school California choice programs. These programs allow parents (and children) to Los Angeles, CA 90089 choose their school. In many cases, when students opt to attend a [email protected] nonlocal school, the parent is responsible for transportation. This creates a trade-off between school quality and travel expenditure. This paper estimates the value of school quality in a random utility model framework, using data on rank-ordered preferences sub- mitted in a school choice program in Garland, Texas. I find that a standard deviation of high school quality is valued between $495 and $783, substantially lower than hedonic estimates that include noneducational benefits associated with good schools. In addition to estimating the average value of school quality, this approach can also be used to estimate the value of school quality for demographic groups or for individual students. doi:10.1162/EDFP_a_00223 © 2018 Association for Education Finance and Policy 149 Downloaded from http://www.mitpressjournals.org/doi/pdf/10.1162/EDFP_a_00223 by guest on 27 September 2021 Does School Quality Matter? 1. INTRODUCTION In the Unites States, and most other developed countries, elementary and secondary schooling is provided as a public good. Because schools are a public good, there is no price signal through which households can directly signal their preferences for educational quality, making it difficult to justify costly educational improvement. This has led to a large literature in economics that seeks to value school quality. In the United States, most students are assigned to schools based on their home residence, and households obtain high-quality education by moving to areas near good schools. This structure is beginning to change, though, as an increasing number of school districts and states allow for households to express preferences in the school assignment process without changing homes. In some cases, school choice programs require households to provide transportation to schools, implicitly placing a price on school attendance. As outlined by Hotelling (1949), and later formalized by Trice and Wood (1958), the travel cost associated with reaching an amenity can be used to value that amenity, and Hanemann (1978) showed that amenity attributes can be valued when travel cost is included in a random utility model. When multiple travel decisions are made, each choice can be used to enhance the precision of the estimate. In this paper I use data on ranked preferences of high schools in a school choice program in Garland, Texas, to estimate the value of school quality based on the trade-off between school quality and travel cost. This imposes less stringent data requirements than wage studies and avoids the need to control for neighborhood attributes, because neighborhood characteristics do not change when an individual student changes schools. The resulting estimate of the value of school quality is robust to the number of schools that students are required to rank in their school choice application, allowing for this approach to be used to value school quality under a wide range of school choice programs. Moreover, the travel cost model asks a different question than the frequently used hedonic models. Whereas hedonic models estimate how much more homes are worth near good schools, the travel cost model estimates how much households are willing to spend in order to attend a good school. This is a policy-relevant question in a number of contexts, particularly in the consideration of student-specific interventions, and these are not questions that hedonic models are well-suited to address. Further, to the ex- tent that policy makers are concerned about improving school quality for economically disadvantaged or minority students, this allows for an estimate of the value of school quality that is tailored to a particular demographic. The rest of the paper proceeds as follows: Section 2 discusses existing methods to value school quality; section 3 discusses school choice programs; section 4 describes the study area; section 5 lays out the methodological approach; section 6 describes the data; section 7 discusses the results and section 8 relates them to hedonic estimates; section 9 concludes the paper. 2. PREVIOUS VALUATIONS OF SCHOOL QUALITY The common approach to measuring the value of school quality relies on the hedonic pricing model, which has been applied to the question of school quality since at least Oates (1969). The hedonic model relies on the fact that school quality is generally driven by home location, and homes that are in the attendance zone of good schools are more 150 Downloaded from http://www.mitpressjournals.org/doi/pdf/10.1162/EDFP_a_00223 by guest on 27 September 2021 Jonathan Eyer valuable to households that value school quality than homes that convey attendance to a poor school. The premium that the housing market places on homes near good schools can be interpreted as the value of school quality. Moreover, because hedonic models consider the premium on all homes—not just homes with students—they capture not only the direct benefits associated with attending a good school but also the ancillary benefits associated with living in a neighborhood with good schools. The inclusion of these ancillary benefits means that the corresponding estimates of the value of school quality can be used to value policy improvements that affect an entire school or district. Good schools tend to be in neighborhoods that have other, enjoyable attributes, and these unobserved neighborhood attributes may bias upward estimates of the value of school quality if values of correlated neighborhood attributes are falsely assigned to school quality. A number of methodological approaches have been developed to address this concern, generally following Black (1999) by exploiting geographic boundaries of school attendance zones as a regression discontinuity. (See Nguyen-Hoang and Yinger 2011 for a thorough overview of the hedonic literature on the value of school quality following Black 1999.) Focusing on only the area immediately surrounding an attendance zone limits the sample to only areas that have the same level of unobservable nonschool-related amenities, isolating the value of school quality from the potential confounding amenities. There is concern, however, that the boundary approach will not completely remove the bias associated with neighborhood characteristics that are correlated to school quality. If school boundaries are consistent over time, households that value school quality will sort toward the side of the boundary that conveys access to the good school, potentially resulting in substantial differences between the neighborhoods and endogenously determined amenities on either side of the boundary (see Dhar and Ross 2012). Bayer, Ferreira, and McMillan (2007) find that after controlling for neighborhood characteristics on either side of a school attendance boundary, the estimated value of school quality falls substantially relative to a model that does not control for neighborhood characteristics. Given that this paper estimates the value of school quality in a discrete choice con- text, it is also worth highlighting a literature that estimates the value of school quality in a discrete choice framework in which households select over a set of homes with an array of attributes, including school quality and price. These models specify an indirect utility function over household and home characteristics and estimate the parameters of the utility function to maximize the likelihood that households select their house rather than the other homes in the choice set (see Nechyba and Strauss 1998). Characteristics of the home are generally represented by a house-specific fixed effect that captures the utility derived from the school quality for which the home is assigned, as well as other observable and unobservable characteristics of the home. The house-specific fixed effect is then regressed in a second stage on school quality and other attributes to isolate the effect of school quality on utility. The discrete choice approach conveys an important benefit relative to the traditional hedonic approach because it allows for the value of school quality to vary across the observable characteristics of individuals. Barrow (2002), for example, finds that white households in Washing- ton, DC, respond to school quality in their housing selection decisions whereas black households do not. Again, the issue of correlation with unobserved neighborhood attributes arises because a home’s price is likely correlated with the unobserved house and 151 Downloaded from http://www.mitpressjournals.org/doi/pdf/10.1162/EDFP_a_00223 by guest on 27 September 2021 Does School Quality Matter? neighborhood attributes. Housing prices are then isolated from house characteristics in an instrumental variables framework using observable attributes of distant houses (see Bayer, Ferreira, and McMillan 2007). 3. SCHOOL CHOICE Although students are generally assigned to a school based on the location of their home, there is growing interest in programs that allow households some degree of choice in the school assignment process. Proponents of these programs argue that, because these programs de-couple educational quality and home prices, they improve educational access for low-income households (Sugarman 2004). Indeed, several states target school choice programs specifically at low-income households or in areas with under-performing schools. Despite the interest in school choice programs, there is mixed evidence of the efficacy of these programs (see, e.g., Cullen, Jacob, and Levitt 2003 and Deming et al. 2014). At their most basic, school choice programs—depending on state and local laws— allow students to request a transfer to a nonlocal school, either elsewhere in the school district or in the state.

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