Searching for the Best Neighborhood: Mobility and Social Interactions

The paper seeks to contribute to the social interactions literature by exploiting data on individuals’ self-selection into neighborhoods. We study a model in which households search for the best location in the presence of neighborhood effects in the formation of children’s human capital and in the process of cultural transmission. We use micro data from the PSID which we have merged, using geocodes, with contextual information at the levels of census tracts and of counties from the 2000 US Census. We control for numerous individual characteristics and neighborhood attributes and find, consistently with neighborhood effects models, that households with children, but not those without, are more likely to move out of neighborhoods whose attributes are not favorable to the production of human capital and the transmission of parents’ cultural traits, and to move into neighborhoods which instead exhibit desirable such attributes. ∗We are grateful to Yelena Ogneva-Himmelberger and the staff of the Tufts GIS Lab for priceless assistance with the GIS Census tract codes. We are also indebted to Bob Haveman for help in acquiring access to the sensitive geocoded data of the Panel Study of Income Dynamics. Nate Baum-Snow, Alberto Bisin, Sam Bowles, David Card, Bryan Graham, Jon Guryan, Anna Hardman, Panle Jia, Enrico Moretti, Erik Plug, Giorgio Topa, Marco Tucci, and Jeff Zabel made very perceptive comments. We are also grateful to seminar participants at the University of Amsterdam, the University of Bergamo, UC Berkeley, MIT, the University of Cyprus, and the University of Siena. This is a revision of the paper presented at the RSAI, Savannah, GA, and at the North American Meeting of the Econometric Society, New Orleans, LA. All errors are ours. †Department of Economics, Tufts University, Medford MA 02155, USA. Telephone: 617 627 3294. Email: [email protected]. URL: http://www.tufts.edu/ ̃yioannid/ ‡Department of Economics, University of Siena, Siena, Italy. Telephone: +39 0577 232 769. Email: [email protected]. URL: http://www.econ-pol.unisi.it/~zanella/