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A Pecuniary Reason for Income Mixing

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  • Frankel, David M.

Abstract

Empirical studies have found a high degree of income mixing in American neighborhoods. We give a new explanation of this phenomenon that is based on consumer search. A low price for a given good benefits high valuation buyers more than low valuation buyers. But with search, the probability of obtaining a low price is increasing in the proportion of low valuation buyers. This gives high valuation buyers an incentive to live near low valuation buyers. With many goods, a buyer has an incentive to live near neighbors whose valuations are uncorrelated with hers.

Suggested Citation

  • Frankel, David M., 1998. "A Pecuniary Reason for Income Mixing," Staff General Research Papers Archive 11925, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genres:11925
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    Cited by:

    1. McKinnish, Terra & White, T. Kirk, 2011. "Who moves to mixed-income neighborhoods?," Regional Science and Urban Economics, Elsevier, vol. 41(3), pages 187-195, May.
    2. Krupka, Douglas J., 2008. "The Stability of Mixed Income Neighborhoods in America," IZA Discussion Papers 3370, Institute of Labor Economics (IZA).
    3. Glenn Ellison, 2005. "A Model of Add-On Pricing," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(2), pages 585-637.
    4. Aaronson, Daniel, 2001. "Neighborhood Dynamics," Journal of Urban Economics, Elsevier, vol. 49(1), pages 1-31, January.

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