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Neighborhood Feedbacks, Endogenous Stratification, and Income Inequality


  • Steven N. Durlauf


This paper explores the evolution of the cross-section income distribution in economies where endogenous neighborhood formation interacts with positive within-neighborhood feedback effects. We study an economy in which the economic success of adults is determined by the characteristics of the families in the neighborhood in which a person grows up. These feedbacks take two forms. First, the tax base of a neighborhood affects the level of education investment in offspring. Second, the productivity of education investment with respect to offspring income is affected by a neighborhood's income distribution, reflecting factors such as role model or labor market connection effects. Conditions are developed under which endogenous stratification, defined as the tendency for families with similar incomes to choose to form common neighborhoods, will occur. Endogenous stratification can lead to pronounced intertemporal inequality as different families provide very different interaction environments for offspring. When neighborhood feedback effects are strong enough, cross-section income differences may grow across time. As a result, endogenous stratificaiton and neighborhood feedbacks can interact to produce permanent inequality.

Suggested Citation

  • Steven N. Durlauf, 1995. "Neighborhood Feedbacks, Endogenous Stratification, and Income Inequality," Working Papers 95-07-061, Santa Fe Institute.
  • Handle: RePEc:wop:safiwp:95-07-061

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    1. links for 2011-01-30
      by Jim in Our Word is Our Weapon on 2011-01-31 09:00:44


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    Cited by:

    1. Ryan Bacic & Angela Zheng, 2022. "Income-Achievement Gaps in Canada," Department of Economics Working Papers 2022-04, McMaster University.
    2. Aaronson, Daniel, 1999. "The Effect of School Finance Reform on Population Heterogeneity," National Tax Journal, National Tax Association;National Tax Journal, vol. 52(1), pages 5-29, March.
    3. Bacic, Ryan & Zheng, Angela, 2023. "Race and the income-achievement gap," CLEF Working Paper Series 55, Canadian Labour Economics Forum (CLEF), University of Waterloo.
    4. Leigh S. Tesfatsion, "undated". "An Evolutionary Trade Network Game with Preferential Partner Selection," Computing in Economics and Finance 1996 _057, Society for Computational Economics.
    5. Galor, Oded & Tsiddon, Daniel, 1997. "Technological Progress, Mobility, and Economic Growth," American Economic Review, American Economic Association, vol. 87(3), pages 363-382, June.
    6. Blackburn, Keith & Bose, Niloy, 2003. "A model of trickle-down through learning," Journal of Economic Dynamics and Control, Elsevier, vol. 27(3), pages 445-466, January.
    7. Liam Aspin, 1997. "Focal Points, Preferences and the Generation of Meaning," University of East Anglia Discussion Papers in Economics _001, School of Economics, University of East Anglia, Norwich, UK..
    8. Tesfatsion, Leigh, 1995. "How Economists Can Get Alife," Economic Reports 18196, Iowa State University, Department of Economics.
    9. Galor, Oded & Tsiddon, Daniel, 1997. "The Distribution of Human Capital and Economic Growth," Journal of Economic Growth, Springer, vol. 2(1), pages 93-124, March.
    10. Bacic, Ryan & Zheng, Angela, 2023. "Race and the Income-Achievement Gap," IZA Discussion Papers 16419, Institute of Labor Economics (IZA).
    11. Keith Blackburn & David Chivers, 2015. "Fearing the worst: the importance of uncertainty for inequality," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 60(2), pages 345-370, October.
    12. repec:wuk:eaercp:_001 is not listed on IDEAS

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