Public Schools & Home Prices

Do school districts affect home prices? True to Tiebout's model, many economists have found that home buyers are often willing to pay a premium to live in districts with the "right" schools. High quality public schools may signal everything home buyers want for their children: safe learning environments, positive peer effects, fewer delinquents, etc.

What if a locality's revenue-expenditure patterns perfectly satisfy a home buyer's preferences in everything but public education? Private suppliers would meet unmet demand, and home buyers that value high quality education would send their child to a private school.

However, if school districts do affect home prices, the consumer of the public good is not the customer. This means there is no way for the citizen-voter (parent-customer) to have full information on the quality of the public good - only the child-consumer does after having attended the school. (Of course, this is addressed in the model's assumptions.) This also means that consumer preferences may not be taken into account when the customer-parent is voting with their feet. (Though Friedman would probably say that the child-consumer is not yet a responsible individual so paternalism is necessary).

Regardless, this typical Tiebout model application tells us a lot about the benefits of locally-provided public goods. Oh the choices!

Trouble Brewing

Them city folks up in Alexandria have got a real Coasian quandary on their hands.  In the community of Del Ray, a man named Gaver Nichols is building a big garage two feet from the home of his next-door neighbors (the Linehans), blocking the view from their kitchen window.  As you can see from the picture below, Mr. Nichols seems to have other locations for the garage on his property but he is diggin in his heals and puttin it right next to the neighbor's house! Peaches and gravy!

Maybe this is the allocatively efficient quantity of garage but them durn Linehans ain't happy.  What would Ronald do?  Well, old Gus think this is a clear cut example of a negative externality.  It is complicated because there is a dispute about the property rights. Mr. Nichols got a permit to build the garage (which seems clear to old Gus), but them durn Linehans are challenging that.  Once they get that sorted out, they will also need to somehow overcome the very significant transactions costs that accompany the big pot of pure hate that is brewing.

In the end, if they work out the property rights and somehow reduce the transactions costs, the garage will be built in that spot only if Mr. Nichols values that garage in that spot more than the Nichols enjoy the old view from their kitchen window.  Porckchops and turnips, this is not going to be easy!

AirBnB and Externalities in New Orleans

     In the past couple of weeks, the city of New Orleans has continued the debate over the benefits and problems of short term rental services such as AirBnB. In fact, on August 9th, the New Orleans City Planning Commission voted to recommend the outlawing, officially, of whole home rentals. Whole home, or whole apartment, rentals were illegal before this vote, but it allowed city officials to make clear delineations in the laws concerning short-term rentals. Now, whole home rentals are recommended to be legal if the entire home or apartment is rented for 30 days or less out of the year and one-room rentals are recommended to be legal full time, as long as there is a limited number of one-room rental per block. The city officials hope this will be a compromise that everyone involved in the situation can live with and that will benefit the city financially, enabling them to track and fine AirBnb and other short term rentals not in compliance in New Orleans.
     A classic example of a negative externality is a sewage plant located near a neighborhood or plot of land that reduces the value of that plot of land or land in the neighborhood due to its location near the sewage plant (most likely cause: the smell). AirBnb and other short term rental companies in New Orleans have had an opposite effect for landowners. In neighborhoods where AirBnbs have become quite popular, including the Marigny and Bywater districts in particular, land values have increased significantly. This is a positive externality of neighbors using AirBnB for the land owners currently living in those neighborhoods.
     However, this has been a significant problem for the full time renters in the area, thus the spirited debates that have been taking place during open meetings of the New Orleans City Council and Planning Commission over the course of the recent rise of short term rentals.  Long term renters in the areas have seen their rent increase significantly as the land values have increased significantly, which is resulting in difficulties for the renting residents of these neighborhoods. In addition, long term renters and residents of the areas have been complaining about the lack of maintenance of short term rentals leading to a more negative living experience in neighborhoods with large numbers of short term rentals. While a Coasian solution would involve a case by case deliberation consisting of those individuals affected by each short term rental, the New Orleans Planning Commission has taken matters into their own hands and hope that their solution will balance the negative externalities experienced by the long term renters and residents and the positive externalities to landowners, groups which can and do overlap with each other, to create what they believe to be the best solution for their constituents and the city coffers.