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An Equilibrium Model of Sorting in an Urban Housing Market: The Causes and Consequences of Residential Segregation

  • Patrick J. Bayer


    (Yale University, Faculty of Arts & Sciences, Department of Economics (Box 8268))

  • Robert McMillan


    (University of Toronto, Department of Economics)

  • Kim Rueben


    (Public Policy Institute of California)

This paper presents a new equilibrium framework for analyzing economic and policy questions related to the sorting of households within a large metropolitan area. We estimate the model using restricted-access Census data that precisely characterize residential and employment locations for households in the San Francisco Bay Area, yielding accurate measures of preferences for a wide variety of housing and neighborhood attributes across different types of household. We use these estimates to explore the causes and consequences of racial segregation in general equilibrium. Our results indicate that, given the preference structure of households in the Bay Area, the elimination of racial differences in income and wealth would significantly increase the residential segregation of each major racial group, as the equalization of income leads, for example, to the formation of new wealthy, segregated Black and Hispanic neighborhoods. We also provide evidence that sorting on the basis of race itself (whether driven by preferences or discrimination) leads to large reductions in the consumption of housing, public safety, and school quality by Black and Hispanic households.

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Paper provided by Yale School of Management in its series Yale School of Management Working Papers with number ysm410.

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Date of creation: 28 Jul 2004
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Handle: RePEc:ysm:somwrk:ysm410
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  1. Thomas J. Nechyba, 1996. "Existence of Equilibrium and Stratification in Local and Hierarchical Tiebout Economies with Property Taxes and Voting," NBER Technical Working Papers 0190, National Bureau of Economic Research, Inc.
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  7. George J. Borjas, 1994. "Ethnicity, Neighborhoods, and Human Capital Externalities," NBER Working Papers 4912, National Bureau of Economic Research, Inc.
  8. Roland Benabou, 1991. "Workings of a City: Location, Education, and Production," NBER Technical Working Papers 0113, National Bureau of Economic Research, Inc.
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  12. Steve Berry & Oliver B. Linton & Ariel Pakes, 2002. "Limit Theorems for Estimating the Parameters of Differentiated Product Demand Systems," Harvard Institute of Economic Research Working Papers 1955, Harvard - Institute of Economic Research.
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  18. Anas, Alex & Chu, Chaushie, 1984. "Discrete choice models and the housing price and travel to work elasticities of location demand," Journal of Urban Economics, Elsevier, vol. 15(1), pages 107-123, January.
  19. Benabou, Roland, 1996. "Heterogeneity, Stratification, and Growth: Macroeconomic Implications of Community Structure and School Finance," American Economic Review, American Economic Association, vol. 86(3), pages 584-609, June.
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  21. Nechyba, Thomas J, 1999. " School Finance Induced Migration and Stratification Patterns: The Impact of Private School Vouchers," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 1(1), pages 5-50.
  22. Vincent P. Miller & John M. Quigley, 1990. "Segregation by Racial and Demographic Group: Evidence from the San Francisco Bay Area," Urban Studies, Urban Studies Journal Limited, vol. 27(1), pages 3-21, February.
  23. Gabriel, Stuart A & Rosenthal, Stuart S, 1989. "Household Location and Race: Estimates of Multinomial Logit Model," The Review of Economics and Statistics, MIT Press, vol. 71(2), pages 240-49, May.
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