Estimating neighborhood choice models: Lessons from a housing assistance experiment.

Sebastian Galiani, Alvin Murphy, and Juan Pantano , American Economic Review 105(11) , 3385-3415 , November 2015.

We use data from a housing-assistance experiment to estimate a model of neighborhood choice. The experimental variation effectively randomizes the rents which households face and helps identify a key structural parameter. Access to two randomly selected treatment groups and a control group allows for out-of-sample validation of the model. We simulate the effects of changing the subsidy-use constraints implemented in the actual experiment. We find that restricting subsidies to even lower poverty neighborhoods would substantially reduce take-up and actually increase average exposure to poverty. Furthermore, adding restrictions based on neighborhood racial composition would not change average exposure to either race or poverty. 

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