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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.

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Bibliographic Info

Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 11925.

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Date of creation: 01 Jan 1998
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Publication status: Published in Journal of Urban Economics 1998,, pp. 158-169
Handle: RePEc:isu:genres:11925

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Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
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Web page: http://www.econ.iastate.edu
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  1. Durlauf, Steven N., 1994. "Spillovers, stratification, and inequality," European Economic Review, Elsevier, Elsevier, vol. 38(3-4), pages 836-845, April.
  2. Benabou, Roland, 1994. "Human capital, inequality, and growth: A local perspective," European Economic Review, Elsevier, Elsevier, vol. 38(3-4), pages 817-826, April.
  3. Benabou, Roland, 1996. "Equity and Efficiency in Human Capital Investment: The Local Connection," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 63(2), pages 237-64, April.
  4. Reynolds Farley, 1977. "Residential segregation in urbanized areas of the United States in 1970: An analysis of social class and racial differences," Demography, Springer, Springer, vol. 14(4), pages 497-518, November.
  5. Benabou, Roland, 1993. "Workings of a City: Location, Education, and Production," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 108(3), pages 619-52, August.
  6. Epple, Dennis & Filimon, Radu & Romer, Thomas, 1984. "Equilibrium among local jurisdictions: toward an integrated treatment of voting and residential choice," Journal of Public Economics, Elsevier, Elsevier, vol. 24(3), pages 281-308, August.
  7. Peter Diamond, 1985. "Consumer Differences and Prices in a Search Model," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 404, Massachusetts Institute of Technology (MIT), Department of Economics.
  8. Pratt, John W & Wise, David A & Zeckhauser, Richard, 1979. "Price Differences in Almost Competitive Markets," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 93(2), pages 189-211, May.
  9. Miyao, Takahiro, 1978. "Dynamic Instability of a Mixed City in the Presence of Neighborhood Externalities," American Economic Review, American Economic Association, American Economic Association, vol. 68(3), pages 454-63, June.
  10. Joseph E. Stiglitz, 1981. "Public Goods in Open Economies with Heterogeneous Individuals," NBER Working Papers 0802, National Bureau of Economic Research, Inc.
  11. Berglas, Eitan, 1976. "Distribution of tastes and skills and the provision of local public goods," Journal of Public Economics, Elsevier, Elsevier, vol. 6(4), pages 409-423, November.
  12. Goldman, Arieh & Johansson, J K, 1978. " Determinants of Search for Lower Prices: An Empirical Assessment of the Economics of Information Theory," Journal of Consumer Research, University of Chicago Press, University of Chicago Press, vol. 5(3), pages 176-86, December.
  13. Epple, Dennis & Romer, Thomas, 1991. "Mobility and Redistribution," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 99(4), pages 828-58, August.
  14. Marvel, Howard P, 1976. "The Economics of Information and Retail Gasoline Price Behavior: An Empirical Analysis," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 84(5), pages 1033-60, October.
  15. Ellickson, Bryan, 1971. "Jurisdictional Fragmentation and Residential Choice," American Economic Review, American Economic Association, American Economic Association, vol. 61(2), pages 334-39, May.
  16. de Bartolome, Charles A M, 1990. "Equilibrium and Inefficiency in a Community Model with Peer Group Effects," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 98(1), pages 110-33, February.
  17. Bond, Eric W. & Coulson, N. Edward, 1989. "Externalities, filtering, and neighborhood change," Journal of Urban Economics, Elsevier, vol. 26(2), pages 231-249, September.
  18. Carlson, John A & Gieseke, Robert J, 1983. " Price Search in a Product Market," Journal of Consumer Research, University of Chicago Press, University of Chicago Press, vol. 9(4), pages 357-65, March.
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Cited by:
  1. Terra McKinnish & T. Kirk White, 2010. "Who Moves to Mixed-Income Neighborhoods?," Working Papers 10-18, Center for Economic Studies, U.S. Census Bureau.
  2. Aaronson, Daniel, 2001. "Neighborhood Dynamics," Journal of Urban Economics, Elsevier, vol. 49(1), pages 1-31, January.
  3. Krupka, Douglas J., 2008. "The Stability of Mixed Income Neighborhoods in America," IZA Discussion Papers 3370, Institute for the Study of Labor (IZA).
  4. Glenn Ellison, 2004. "A Model of Add-on Pricing," Economics Working Papers, Institute for Advanced Study, School of Social Science 0049, Institute for Advanced Study, School of Social Science.

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