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A Pecuniary Reason for Income Mixing

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  • Frankel, D.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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Suggested Citation

  • Frankel, D.M., 1995. "A Pecuniary Reason for Income Mixing," Papers 20-95, Tel Aviv.
  • Handle: RePEc:fth:teavfo:20-95
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    References listed on IDEAS

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    1. Joseph E. Stiglitz, 1981. "Public Goods in Open Economies with Heterogeneous Individuals," NBER Working Papers 0802, National Bureau of Economic Research, Inc.
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    Cited by:

    1. McKinnish, Terra & White, T. Kirk, 2011. "Who moves to mixed-income neighborhoods?," Regional Science and Urban Economics, Elsevier, vol. 41(3), pages 187-195, May.
    2. Krupka, Douglas J., 2008. "The Stability of Mixed Income Neighborhoods in America," IZA Discussion Papers 3370, Institute for the Study of Labor (IZA).
    3. Glenn Ellison, 2005. "A Model of Add-On Pricing," The Quarterly Journal of Economics, Oxford University Press, vol. 120(2), pages 585-637.
    4. Aaronson, Daniel, 2001. "Neighborhood Dynamics," Journal of Urban Economics, Elsevier, vol. 49(1), pages 1-31, January.

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    Keywords

    INCOME;

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