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Dynamics of neighborhood formation and segregation by income

  • Osiris Jorge, Parcero
  • Adolfo, Cristobal-Campoamor

This paper analyzes some determinant conditions under which neighborhood formation gives rise to segregation by income. In contrast to the literature, we explore the sequential arrival of poor and rich individuals to neighborhoods exploited by oligopolistic land developers. These developers try to maximize a discounted flow of lot prices during neighborhood formation, taking advantage of the local externalities generated by the rich and the poor. Under a speedy arrival of new potential inhabitants and/or low discount rates, competing developers are more likely to concentrate rich people in the same neighborhood. This happens because the benefits from early agglomeration are outweighed by a more profitable matching of rich neighbors within nearby lots.

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File URL: http://mpra.ub.uni-muenchen.de/16936/1/MPRA_paper_16936.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 16936.

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Date of creation: 25 Aug 2009
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Handle: RePEc:pra:mprapa:16936
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  1. Luttmer, Erzo F. P., 2004. "Neighbors as Negatives: Relative Earnings and Well-Being," Working Paper Series rwp04-029, Harvard University, John F. Kennedy School of Government.
  2. Bayer, Patrick & Fang, Hanming & McMillan, Robert, 2005. "Separate When Equal? Racial Inequality and Residential Segregation," Working Papers 9, Yale University, Department of Economics.
  3. Rajiv Sethi & Rohini Somanathan, 2001. "Inequality and Segregation," Microeconomics 0108005, EconWPA.
  4. Durlauf, S.N., 1992. "A Theory of Persistent Income Inequality," Papers 47, Stanford - Institute for Thoretical Economics.
  5. Lundberg, Shelly & Startz, Richard, 2004. "Information and Racial Exclusion," IZA Discussion Papers 1389, Institute for the Study of Labor (IZA).
  6. de Bartolome, Charles A M, 1990. "Equilibrium and Inefficiency in a Community Model with Peer Group Effects," Journal of Political Economy, University of Chicago Press, vol. 98(1), pages 110-33, February.
  7. HENDERSON, J. Vernon & THISSE, Jacques-François, . "On strategic community development," CORE Discussion Papers RP -1502, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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