A consumer demand approach to estimating the education quality component of housing cost

Abstract

A consumer demand-based approach is proposed for estimating the shadow price of education relative to housing for households with children in state schools. This approach can be used together with or in place of a hedonic approach in countries in which the location of households is not disclosed in publicly available data. An empirical illustration is provided using UK data from the family expenditure surveys.

Keywords:

• consumer demand
• education
• willingness to pay
• housing cost

JEL Classification:

• D12
• I21

Acknowledgement

The authors thank Prof. Panos Pashardes for his useful comments and suggestions.

Notes

¹ The dependence of c ₀(·) on U implies that consumer demand for q _0j, j = 1, 2, is nonhomothetic. In addition, the fact that c ₀(·) depends on utility defined on aggregate consumption q ₀, q ₁, q ₂, …, q _n (and not on the sub-vector (q ₀₁, q ₀₂)) implies that this function is implicitly (and not weakly) separable. The different concepts of separability in consumer demand are discussed in Blackorby and Shorrocks (1996).

² The notional education expenditure of households in state schools used in this article is a household-specific indicator of education quality, unlike school and local authority-specific indicators used in other studies.

³ Time variation is removed using dummies, so as to maintain the interpretation of ε₁ in Equation 8(8) as the shadow price of education.

⁴ For owner occupiers, the imputed rent is normally available in family expenditure surveys, but not in the UK 1994–1997 data used here. We estimate the rental value of accommodation by a Heckman-type procedure using households renting their accommodation. Details are given in a full version of an Appendix available to interested readers on request.

⁵ Details are given in a full version of an Appendix available to interested readers on request.

⁶ The joint chi-squared for the extra variables is 57.93 (p = 0.000).