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Inequality, neighbourhoods and welfare of the poor

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  • Namrata Gulati

    ()
    (Indian Statistical Institute, New Dlehi)

  • Tridip Ray

    ()
    (Indian Statistical Institute, New Delhi)

Abstract

This paper investigates how neighbourhood effects interacting with income inequality affect poor people's ability to access basic facilities like health care services, schooling and so on. We model this interaction by integrating consumers' income distribution with the spatial distribution of their location and explore the consequences of an increase in income inequality on the welfare of the poor in general, and their access to market in particular. We find inverted-U shape relationships between income inequality and market access and welfare of the poor: if we compare a cross-section of societies, the poor community as a whole is initially better-off living in relatively richer societies, but, beyond a point, the aggregate market access and consumer surplus of the poor starts declining as the society becomes richer. There exist multiple equilibria: a bad equilibrium where all the poor are excluded exists simultaneously with a good equilibrium where at least some poor (if not all of them) get served by the market. We have identi?ed the higher income gap between rich and poor as the key factor that exposes the poor to this complete exclusion possibility. Finally comparing a mixed-income neighbourhood where rich and poor live side by side with a single-income homogeneous neighbourhood we find that the poor are better-off living in the mixed neighbourhood as long as the poor income is below a certain feasibility threshold.

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Bibliographic Info

Paper provided by Indian Statistical Institute, New Delhi, India in its series Indian Statistical Institute, Planning Unit, New Delhi Discussion Papers with number 11-07.

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Length: 46 pages
Date of creation: Jun 2011
Date of revision:
Handle: RePEc:ind:isipdp:11-07

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  1. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, January.
  2. Glick, Peter & Sahn, David E., 2006. "The demand for primary schooling in Madagascar: Price, quality, and the choice between public and private providers," Journal of Development Economics, Elsevier, vol. 79(1), pages 118-145, February.
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  8. Daniel Aaronson, . "Using Sibling Data to Estimate the Impact of Neighborhoods on Children's Educational Outcomes," IPR working papers 95-20, Institute for Policy Resarch at Northwestern University.
  9. Das, Jishnu & Hammer, Jeffrey, 2005. "Which doctor? Combining vignettes and item response to measure clinical competence," Journal of Development Economics, Elsevier, vol. 78(2), pages 348-383, December.
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  12. Mohammad Niaz Asadullah, 2011. "Intra- and inter-household externalities in children's schooling: evidence from rural residential neighbourhoods in Bangladesh," Applied Economics, Taylor & Francis Journals, vol. 43(14), pages 1749-1767.
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