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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. Henderson, J.Vernon, 2001. "On strategic community development," Open Access publications from Université catholique de Louvain info:hdl:2078.1/23341, Université catholique de Louvain.
  2. Rajiv Sethi & Rohini Somanathan, 2001. "Inequality and Segregation," Microeconomics 0108005, EconWPA.
  3. Shelly Lundberg & Richard Startz, 2007. "Information and racial exclusion," Journal of Population Economics, Springer, vol. 20(3), pages 621-642, July.
  4. Patrick Bayer & Hanming Fang & Robert McMillan, 2005. "Separate When Equal? Racial Inequality and Residential Segregation," NBER Working Papers 11507, National Bureau of Economic Research, Inc.
  5. Erzo F.P. Luttmer, 2004. "Neighbors as Negatives: Relative Earnings and Well-Being," NBER Working Papers 10667, National Bureau of Economic Research, Inc.
  6. Durlauf, S.N., 1992. "A Theory of Persistent Income Inequality," Papers 47, Stanford - Institute for Thoretical Economics.
  7. J. Vernon Henderson & Jacques-Francois Thisse, 2001. "On Strategic Community Development," Journal of Political Economy, University of Chicago Press, vol. 109(3), pages 546-569, June.
  8. 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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