Sample Economics Paper on Home Price and Quality of Education

Relationship between home price and quality of education.

The notion of using the prevailing value of a piece of land to determine the value of other amenities offered is purely reliant on economics theory. The value attached to a piece of land reflects the demand attached to that location (Gibbons, Machin & Stephen, 2013). This value is, however, dependent on amenities offered at that location such as transport networks and schooling infrastructure. Holding all other factors constant, it is possible to deduce the value of land as an independent entity. The availability of other components of land have the effect of adding a marginal value to the intrinsic value of land.

Housing happens to be a composite good; this is because a consumer will choose a housing type based on an optimum bundle of services that include among many the quality of school in the area. According to Bishop & Timmins (2011), hedonic price function can be used to map out the association between housing prices and school quality. Assuming a negligible variation in the price of land in two locations, the differing quality of schooling offered in these locations will affect the overall cost of housing. Assuming two school districts having homes on sale, it is possible to deduce the marginal benefit as a result of good schooling.

Considering school districts A and B with both having homes on sale, it is possible to deduce the value parents place on the quality of their children’s schools. This is because the implicit price of better schooling will add to the implicit price of the home to get the total value of the home. If homes near school district B happen to be cheaper than those near A, then the implicit price of schooling in A is higher than that in B. This translates to a higher price of homes in school district A than B. This clearly shows that parents willing to move to school district A value the quality of their children’s education more.

 

References.

Bishop, K. C., & Timmins, C. (2011). Hedonic prices and implicit markets: Estimating marginal willingness to pay for differentiated products without instrumental variables (No. w17611). National Bureau of Economic Research.

Gibbons, S., Machin, S., & Silva, O. (2013). Valuing school quality using boundary discontinuities. Journal of Urban Economics75, 15-28.