Do Households Prefer Small School Districts? A Natural Experiment

Some education reformers have proposed breaking up large urban school districts, thereby moving to a more efficient scale, increasing school choices, and promoting school competition. This article tests whether households expect these effects and whether they value them. It considers the effect on real estate prices of the surprise breakup of the Los Angeles Unified School District (LAUSD) into 11 minidistricts in April 2000. We estimate households' reaction to this reform in a difference‐in‐differences setting that controls for any unobserved spatial effects unaffected by the announcement. We find that households valued this decentralization, with a 2–3 percentage point increase in housing values in the LAUSD area over pre‐existing trends, compared with control districts. The effect is highest in wealthier neighborhoods but otherwise homogenous within the LAUSD area. The results suggest that households believe that decentralization would make schools more effective and that they respond to signals about schools' future.