Property Emulation: Consumption Externalities in Renovation Decisions
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2017
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Haverford College. Department of Economics
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eng
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Abstract
This paper contributes to the growing literature relating to exogenous social effects in home rehabilitation decisions. The empirical model used in this paper exploits differences between visible and non-visible spillover effects. Specifically, observing differences in the effects of accepted and rejected home improvement loan applications on neighboring renovation demand. This approach controls for non-random neighborhood sorting in addition to endogenous and correlated neighborhood effects. Estimation of this model exploits household level data from the Home Mortgage Disclosure Act that has been aggregated to the neighborhood level. In line with the sociological and economic theory, these results support the hypothesis that demand for home improvement loans in one district increases in response to a positive shift in housing renovation in and adjacent district. My results also show the presence of within neighborhood spillovers. I find that these effects decrease but remain significant with increasing distance. The findings of this paper have important implications for home policy makers and mortgage lending institutions.