Nonlinear hedonics and the search for school district quality

A school’s quality is often inferred from the premium a parent must pay to buy a house associated with a better school. Isolating this effect, however, is difficult because better schools also tend to be located in nicer neighborhoods and, therefore, cost more for reasons other than school quality. Although recent work has been relatively successful in isolating this effect, it is limited to the extent that it assumes a linear effect of schools on housing prices. We examine this relationship and find that the premium for school quality is nonlinear: There is a premium for houses in better school attendance zones, but there is no penalty for houses in worse school attendance zones. Our results suggest that previous studies have undervalued parents’ willingness to pay for high-quality public schools, which, we argue, is attributable to underestimating the degree of heterogeneity in parental preferences.