The research explores the causes and consequences of racial segregation in general equilibrium. The results indicate that, given the preference structure of households in the San Francisco 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 neighbourhoods.

The paper also provides 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.

A number of important features of the landscape of an urban housing market are determined by the way that households sort among its neighbourhoods. This sorting affects residential stratification on the basis of race, income, and other family attributes, the congestion of the transportation network, and the distribution of school quality, crime, property tax bases, and housing prices throughout the urban area.

It also has important welfare implications. A full understanding of these implications requires knowledge of the preferences of the heterogeneous households in the metropolitan region and a model that describes how these preferences aggregate to form an equilibrium. The primary goal of this paper is to provide these necessary components.

The researchers 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 neighbourhood attributes across different types of household. They use these estimates to explore the causes and consequences of racial segregation in general equilibrium.

First, removing racial differences in income and wealth or education leads to a marked increase in the segregation of each race. Moreover, the researchers find that randomizing job locations throughout the Bay Area would in fact lead to increases in segregation.

Eliminating the portion of the preference structure relating to preferences for neighbourhood race almost entirely eliminates segregation on the basis of race, leaving little explanatory role for factors related to the other features included in the analysis. The elimination of racial interactions also provides clear evidence that certain household types under-consume housing and school quality in order to live in communities with the racial composition that they prefer.

For example, the researchers find that upper income Black and Hispanic households would consume significantly more school quality in the absence of any preferences for neighbourhood race. This finding has important implications for policy. It indicates that decoupling housing choice from public school assignment could lead to improvements in education quality for a significant subset of minority households, with all the associated benefits that would bring.

Yale University - Department of Economics
Patrick Bayer (Researcher), tel. +1 2034326292

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01/07/2003

Patrick Bayer, Robert McMillan and Kim Rueben

research

Urban Policy > Social inclusion & integration

Integration of social groups