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Neighborhood dynamics and the distribution of opportunity

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  • Dionissi Aliprantis
  • Daniel R. Carroll

Abstract

This paper uses an overlapping-generations dynamic general equilibrium model of residential sorting and intergenerational human capital accumulation to investigate effects of neighborhood externalities. In the model, households choose where to live and how much to invest toward the production of their child?s human capital. The return on the parent?s investment is determined in part by the child?s ability and in part by an externality from the average human capital in their neighborhood. We use the model to test a prominent hypothesis about the concentration of poverty within racially-segregated neighborhoods (Wilson 1987). We first impose segregation on a model with two neighborhoods and match the model steady state to income and housing data from Chicago in 1960. Next, we lift the restriction on moving and compute the new steady state and corresponding transition path. The transition implied by the model qualitatively supports Wilson?s hypothesis: high-income residents of the low-average-human-capital neighborhood move out, reducing the returns to investment in their old neighborhood. Sorting increases citywide human capital, but it also produces congestion in the high-income neighborhood, increasing the average cost of housing. As a result, average welfare decreases by 2.2 percent of steady state consumption, and the loss is greatest for those initially in the low-income neighborhood.

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  • Dionissi Aliprantis & Daniel R. Carroll, 2012. "Neighborhood dynamics and the distribution of opportunity," Working Papers (Old Series) 1212, Federal Reserve Bank of Cleveland.
  • Handle: RePEc:fip:fedcwp:1212
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    Cited by:

    1. Dionissi Aliprantis, 2014. "When Should Children Start School?," Journal of Human Capital, University of Chicago Press, vol. 8(4), pages 481-536.
    2. Dionissi Aliprantis, 2019. "Racial Inequality, Neighborhood Effects, and Moving to Opportunity," Economic Commentary, Federal Reserve Bank of Cleveland, issue October.
    3. Dionissi Aliprantis, 2011. "Assessing the evidence on neighborhood effects from moving to opportunity," Working Papers (Old Series) 1101, Federal Reserve Bank of Cleveland.
    4. Dionissi Aliprantis & Hal Martin, 2020. "Neighborhood Sorting Obscures Neighborhood Effects in the Opportunity Atlas," Working Papers 202037, Federal Reserve Bank of Cleveland.
    5. Dionissi Aliprantis & Hal Martin & Kristen Tauber, 2020. "What Determines the Success of Housing Mobility Programs?," Working Papers 202036, Federal Reserve Bank of Cleveland.
    6. Paulo Mourao & Marco António Pinheiro Silveira & Rodrigo Santos De Melo, 2018. "Many Are Never Too Many: An Analysis of Crowdfunding Projects in Brazil," International Journal of Financial Studies, MDPI, Open Access Journal, vol. 6(4), pages 1-1, November.
    7. Dionissi Aliprantis, 2013. "Human capital in the inner city," Working Papers (Old Series) 1302, Federal Reserve Bank of Cleveland.
    8. Dionissi Aliprantis, 2017. "Human capital in the inner city," Empirical Economics, Springer, vol. 53(3), pages 1125-1169, November.
    9. Dionissi Aliprantis & Daniel R. Carroll & Eric R. Young, 2019. "What Explains Neighborhood Sorting by Income and Race?," Working Papers 201808R, Federal Reserve Bank of Cleveland.

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    More about this item

    Keywords

    Housing policy; Population; Wealth; Equilibrium (Economics) - Mathematical models; Human capital;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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