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A Pecuniary Reason for Income Mixing

Author

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  • Frankel, David 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.

Suggested Citation

  • Frankel, David M., 1998. "A Pecuniary Reason for Income Mixing," Staff General Research Papers Archive 11925, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genres:11925
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    Cited by:

    1. Glenn Ellison, 2005. "A Model of Add-On Pricing," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(2), pages 585-637.
    2. 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.
    3. Krupka, Douglas J., 2008. "The Stability of Mixed Income Neighborhoods in America," IZA Discussion Papers 3370, Institute of Labor Economics (IZA).
    4. Aaronson, Daniel, 2001. "Neighborhood Dynamics," Journal of Urban Economics, Elsevier, vol. 49(1), pages 1-31, January.

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