The theory of the household's valuation of neighborhood amenities is expanded, using a housing value equation, to show how the household's valuation of amenities is affected by amenities in surrounding areas. An empirical model using data from 71 suburban communities in the Chicago area is specified to measure the simultaneous interaction among housing values, crime, and police efforts. A revenue equation is also included to determine how the household's valuation of crime and racial composition affects the community's revenue-raising ability. Empirical results indicate that crime and racial composition in the household's community and in surrounding communities have a statistically significant effect on housing values. While the magnitude of the effect is small, the results indicate that households consider the crime rate and racial composition of surrounding communities as negative externalities. The results also suggest that an increased black presence in the community adversely affects housing values. 20 references, 3 tables.