Impact of school quality on house prices and estimation of parental demand for good schools in Korea

Korean parents have high demands for their children's education. Korean households' expenditure pattern for private tutoring has been revealed through various surveys, but their demand for public school education has been rarely analyzed. Using the Housing Market Survey on the Seoul metropolitan area in 2001, this study estimates the household-level demand function for public school quality by applying a rigorous economic analysis model (Rosen's two-step estimation scheme). In the first step, this study estimated the impact of public school quality on house prices using the hedonic price function. This estimate can then be used as the implicit price for public school quality. Based on this, the study next estimated the household-level demand function for public school quality. Results showed that public school quality, as measured by the number of students per 1,000 graduates who entered Seoul National University, has a significant impact on house prices in the Seoul metropolitan area. The demand function estimation showed that the implicit price of school quality, household income and household head's educational attainment are the significant factors that determine parental demand for good schools. In particular, a 10% increase in household income level results in attendance at a school that has 0.235 more students accepted by Seoul National University per 1,000 graduates, all other factors remaining constant.