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Expectations and the Timing of Neighborhood Change

  • Frankel, David M.
  • Pauzner, Ady

We study the role of expectations when agents have a preference for segregation and households face moving frictions. In a fixed environment, there are multiple equilibria: agents' expectations determine whether an ethnic transition occurs. However, the outcome is unique if there is a deterministic trend that gradually makes the neighborhood more appealing to the outside group. It is also unique if the relative payoff from living in the neighborhood is subject to small shocks. In both cases, the insiders must leave at the first possible moment: when the outsiders would outbid them if an immediate ethnic transition were expected.

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Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 11921.

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Date of creation: 01 Jan 2002
Date of revision:
Publication status: Published in Journal of Urban Economics 2002,, pp. 295-314
Handle: RePEc:isu:genres:11921
Contact details of provider: Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
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  1. Frankel, David M. & Burdzy, Krzysztof & Pauzner, Ady, 2001. "Fast Equilibrium Selection by Rational Players Living in a Changing World," Staff General Research Papers 11923, Iowa State University, Department of Economics.
  2. Benabou, Roland, 1996. "Equity and Efficiency in Human Capital Investment: The Local Connection," Review of Economic Studies, Wiley Blackwell, vol. 63(2), pages 237-64, April.
  3. Miyao, Takahiro, 1978. "Dynamic Instability of a Mixed City in the Presence of Neighborhood Externalities," American Economic Review, American Economic Association, vol. 68(3), pages 454-63, June.
  4. Roland Benabou, 1991. "Workings of a City: Location, Education, and Production," NBER Technical Working Papers 0113, National Bureau of Economic Research, Inc.
  5. David Frankel & Ady Pauzner, 2000. "Resolving Indeterminacy In Dynamic Settings: The Role Of Shocks," The Quarterly Journal of Economics, MIT Press, vol. 115(1), pages 285-304, February.
  6. Collins, Wiiliam J., 1997. "When the Tide Turned: Immigration and the Delay of the Great Black Migration," The Journal of Economic History, Cambridge University Press, vol. 57(03), pages 607-632, September.
  7. Bond, Eric W. & Coulson, N. Edward, 1989. "Externalities, filtering, and neighborhood change," Journal of Urban Economics, Elsevier, vol. 26(2), pages 231-249, September.
  8. W. Clark, 1991. "Residential preferences and neighborhood racial segregation: A test of the schelling segregation model," Demography, Springer, vol. 28(1), pages 1-19, February.
  9. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416.
  10. Epple, Dennis & Romer, Thomas, 1991. "Mobility and Redistribution," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 828-58, August.
  11. Courant, Paul N., 1978. "Racial prejudice in a search model of the urban housing market," Journal of Urban Economics, Elsevier, vol. 5(3), pages 329-345, July.
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