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

Abstract:     
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.

Number of Pages in PDF File: 89

Keywords: Segregation, Sorting, Housing Markets, Locational Equilibrium, Residential Choice, Discrete Choice

JEL Classification: H0, J7, R0, R2

working papers series