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An Equilibrium Model of Sorting in an Urban Housing Market: The Causes and Consequences of Residential Segregation

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  • Patrick Bayer

    (Economic Growth Center, Yale University)

  • Robert McMillan
  • Kim Rueben

Abstract

This paper presents a new equilibrium framework for analyzing economic and policy questions related to the sorting of households within a large metropolitan area. We estimate the model using restricted-access Census data that precisely characterize residential and employment locations for households the San Francisco Bay Area, yielding accurate measures of preferences for a wide variety of housing and neighborhood attributes across different types of household. We use these estimates to explore the causes and consequences of racial segregation in general equilibrium. Our results indicate that, given the preference structure of households in the Bay Area, the elimination of racial differences in income and wealth would significantly increase the residential segregation of each major racial group, as the equalization of income leads, for example, to the formation of new wealthy, segregated Black and Hispanic neighborhoods. We also provide evidence that sorting on the basis of race itself (whether driven by preferences or discrimination) leads to large reductions in the consumption of housing, public safety, and school quality by Black and Hispanic households.

Suggested Citation

  • Patrick Bayer & Robert McMillan & Kim Rueben, 2003. "An Equilibrium Model of Sorting in an Urban Housing Market: The Causes and Consequences of Residential Segregation," Working Papers 860, Economic Growth Center, Yale University.
  • Handle: RePEc:egc:wpaper:860
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    Cited by:

    1. Pedro Carneiro & Jishnu Das & Hugo Reis, 2016. "The value of private schools: evidence from Pakistan," CeMMAP working papers CWP22/16, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    2. Schmidheiny, Kurt, 2006. "Income segregation and local progressive taxation: Empirical evidence from Switzerland," Journal of Public Economics, Elsevier, vol. 90(3), pages 429-458, February.
    3. Zhang, Zhaohua & Hite, Diane, 2015. "House Value, Crime and Residential Location Choice," 2015 Annual Meeting, January 31-February 3, 2015, Atlanta, Georgia 196826, Southern Agricultural Economics Association.
    4. Schmidheiny, Kurt, 2006. "Income segregation from local income taxation when households differ in both preferences and incomes," Regional Science and Urban Economics, Elsevier, vol. 36(2), pages 270-299, March.
    5. Patrick Bayer & Robert McMillan & Kim Rueben, 2004. "An Equilibrium Model of Sorting in an Urban Housing Market," NBER Working Papers 10865, National Bureau of Economic Research, Inc.
    6. Shihe Fu & Stephen L. Ross, 2013. "Wage Premia in Employment Clusters: How Important Is Worker Heterogeneity?," Journal of Labor Economics, University of Chicago Press, vol. 31(2), pages 271-304.
    7. Kerry Smith, V. & Sieg, Holger & Spencer Banzhaf, H. & Walsh, Randall P., 2004. "General equilibrium benefits for environmental improvements: projected ozone reductions under EPA's Prospective Analysis for the Los Angeles air basin," Journal of Environmental Economics and Management, Elsevier, vol. 47(3), pages 559-584, May.
    8. Giulio Zanella, 2004. "Discrete Choice with Social Interactions and Endogenous Memberships," Department of Economics University of Siena 442, Department of Economics, University of Siena.
    9. Pengyu Ren & Yuanli Li & Kairui You, 2021. "Residents’ Demands for Urban Retail: Heterogeneity in Housing Structure Characteristics, Price Quantile, and Space," Land, MDPI, vol. 10(12), pages 1-17, December.
    10. Grainger, Corbett A., 2012. "The distributional effects of pollution regulations: Do renters fully pay for cleaner air?," Journal of Public Economics, Elsevier, vol. 96(9-10), pages 840-852.
    11. Eleanor Brown & Rosanna Smart, 2007. "Racial Differences in Civic Participation and Charitable Giving: The Confounding Effects of Educational Attainment and Unmeasured Ability," The Review of Black Political Economy, Springer;National Economic Association, vol. 34(3), pages 259-271, December.

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    More about this item

    Keywords

    Segregation; Sorting; Housing Markets; Locational Equilibrium; Residential Choice; Discrete Choice;
    All these keywords.

    JEL classification:

    • H0 - Public Economics - - General
    • J7 - Labor and Demographic Economics - - Labor Discrimination
    • R0 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General
    • R2 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis

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