Nonlinear hedonics and the search for school district quality

"It is difficult to determining the value of better schools as it relates to children's outcomes; school value is often inferred from the increased money a parent has to pay to buy a house associated with a better school. However, isolating this effect is often difficult because better schools also tend to be located in nicer neighborhoods.Although recent work has been relatively successful at isolating this affect, this work has been limited in that it assumes a linear effect of schools on housing prices. In this paper, we examine this relationship, allowing for nonlinear effects and find that the premium for schools is nonlinear: There is no penalty for houses in worse-than average school districts but a strong premium for houses in better school districts. Our results suggest that previous studies have undervalued parents' willingness to pay for high-quality public schools, perhaps a side-effect of underestimating the degree of heterogeneity in parental preferences"--Federal Reserve Bank of St. Louis web site.