Inequality and Segregation

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Abstract
This paper explores the manner in which race and income interact to determine patterns of residential location in metropolitan areas. We use a framework in which individuals care about both the level of affluence and the racial composition of their communities, and in which there are differences in income both within and between groups. Three main findings emerge. First, under certain conditions there exist stable equilibria in which, conditional on income, black households experience lower neigh- borhood quality relative to whites. Second, extreme levels of segregation can be stable when racial income disparities are either sufficiently large or sufficiently small, but unstable in some intermediate range. Third, there exist multiple stable equilibria with very different levels of segregation when racial income disparities are sufficiently small. These results hold even when preferences are pro-integrationist, in the sense that racially mixed neighborhoods within a certain range are strictly preferred by all households to homogenous neighborhoods of either type.

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