Attitudes of ethnic majority populations towards other communities is a potentially important determinant of social exclusion and welfare of ethnic minorities. The suggestion that negative attitudes towards minorities may be affected by the ethnic composition of the locality in which individuals live has often been made and empirically investigated. We point to a potential for bias in simple estimates of ethnic context effects if individual location decisions are driven partly by attitudinal factors. We also suggest an instrumental variables procedure for overcoming such bias in data with appropriate spatial information. Our results suggest that such a correction may be important.