In this paper, we estimate a model of housing demand with neighborhood effects. We exploit special features of the National sample of the American Housing Survey and properties of housing markets that allow us to create "natural" instruments and therefore identify the impact of social interactions. We find evidence of both endogenous and contextual neighborhood effects. We report two alternative ... read moresets of estimates for neighborhood effects that differ in terms of the instruments we use for estimating the model. When the endogenous neighborhood effect is large the respective contextual effects are weak, and vice versa. The elasticity of housing demand with respect to the mean of the neighbors' housing demands (the endogenous effect) ranges from 0.19 to 0.66 and is generally very significant. The contextual effects are also very significant. A key such effect, the elasticity with respect to the mean of neighbors' permanent incomes ranges from 0.17 to 0.54.read less
Ioannides, Yannis M. and Jeffrey E. Zabel. 2003. "Neighborhood Effects and Housing Demand." Journal of Applied Econometrics 18: 563-584. doi: 10.1002/jae.740.
