Residential Income Segregation: A Behavioral Model of the Housing Market

36 Pages Posted: 11 Dec 2017 Last revised: 21 Oct 2018

See all articles by Marco Pangallo

Marco Pangallo

University of Oxford

Jean-Pierre Nadal

French National Center for Scientific Research (CNRS); ENS; EHESS

Annick Vignes

Ecole des Ponts ParisTech

Date Written: October 20 , 2018

Abstract

We represent the functioning of the housing market and study the relation between income segregation, income inequality and house prices by introducing a spatial Agent-Based Model (ABM). Differently from traditional models in urban economics, we explicitly specify the behavior of buyers and sellers and the price formation mechanism. Buyers who differ by income select among heterogeneous neighborhoods using a probabilistic model of residential choice; sellers employ an aspiration level heuristic to set their reservation offer price; prices are determined through a continuous double auction. We first provide an approximate analytical solution of the ABM, shedding light on the structure of the model and on the effect of the parameters. We then simulate the ABM and find that: (i) a more unequal income distribution lowers the prices globally, but implies stronger segregation; (ii) a spike of the demand in one part of the city increases the prices all over the city; (iii) subsidies are more efficient than taxes in fostering social mixing.

Keywords: Agent-Based Model, Housing Market, Residential Income Segregation, Aspiration Level Heuristic, Urban Economics

JEL Classification: C63, D31, O18, R23, R31

Suggested Citation

Pangallo, Marco and Nadal, Jean-Pierre and Vignes, Annick, Residential Income Segregation: A Behavioral Model of the Housing Market (October 20 , 2018). Available at SSRN: https://ssrn.com/abstract=3084090 or http://dx.doi.org/10.2139/ssrn.3084090

Marco Pangallo (Contact Author)

University of Oxford ( email )

Mansfield Road
Oxford, Oxfordshire OX1 4AU
United Kingdom

Jean-Pierre Nadal

French National Center for Scientific Research (CNRS)

LPS (UMR 8550 CNRS ENS Paris 6 and Paris 7)
Ecole Normale Supérieure
75231 Paris Cedex 05
France

HOME PAGE: http://www.lps.ens.fr/

ENS

Laboratoire de Physique Statistique
24 rue Lhomond
Paris, 75005
France

HOME PAGE: http://www.lps.ens.fr/

EHESS

CAMS (UMR 8557 CNRS EHESS)
54, boulevard Raspail
Paris, 75006
France

HOME PAGE: http://cams.ehess.fr/jean-pierre-nadal/

Annick Vignes

Ecole des Ponts ParisTech ( email )

6-8 avenue Blaise-Pascal, Cité Descartes
Champs-sur-Marne
Marne-la-Vallée Cedex 2, 77455
France

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