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Dynamics of neighborhood formation and segregation by income

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  • Osiris Jorge, Parcero
  • Adolfo, Cristobal-Campoamor

Abstract

This paper analyzes some determinant conditions under which neighborhood formation gives rise to segregation by income. In contrast to the literature, we explore the sequential arrival of poor and rich individuals to neighborhoods exploited by oligopolistic land developers. These developers try to maximize a discounted flow of lot prices during neighborhood formation, taking advantage of the local externalities generated by the rich and the poor. Under a speedy arrival of new potential inhabitants and/or low discount rates, competing developers are more likely to concentrate rich people in the same neighborhood. This happens because the benefits from early agglomeration are outweighed by a more profitable matching of rich neighbors within nearby lots.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 16936.

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Date of creation: 25 Aug 2009
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Handle: RePEc:pra:mprapa:16936

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Keywords: land developers; segregation; income distribution; arrival rates;

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  1. Erzo F. P. Luttmer, 2005. "Neighbors as Negatives: Relative Earnings and Well-Being," The Quarterly Journal of Economics, MIT Press, vol. 120(3), pages 963-1002, August.
  2. Lundberg, Shelly & Startz, Richard, 2004. "Information and Racial Exclusion," IZA Discussion Papers 1389, Institute for the Study of Labor (IZA).
  3. Steven N. Durlauf, 1992. "A Theory of Persistent Income Inequality," NBER Working Papers 4056, National Bureau of Economic Research, Inc.
  4. Patrick Bayer & Hanming Fang & Robert McMillan, 2011. "Separate When Equal? Racial Inequality and Residential Segregation," Working Papers 11-09, Duke University, Department of Economics.
  5. Rajiv Sethi & Rohini Somanathan, 2004. "Inequality and Segregation," Journal of Political Economy, University of Chicago Press, vol. 112(6), pages 1296-1321, December.
  6. HENDERSON, J. Vernon & THISSE, Jacques-François, . "On strategic community development," CORE Discussion Papers RP -1502, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  7. 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, vol. 98(1), pages 110-33, February.
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