Dynamics of neighborhood formation and segregation by income.pdfVIP

Dynamics of neighborhood formation and segregation by income Osiris J. Parcero; Adolfo Cristobal Campoamor Work in Progress Abstract This paper analyzes some determinant conditions under which neighborhood formation gives rise to segregation by income. In contrast to the literature, we explore the sequential arrival of poor and rich individuals to neighborhoods exploited by oligopolistic land-developers. These developers try to maximize a discounted áow of lot prices during neighborhood formation, taking advantage of the local externalities generated by the rich and the poor. Under a speedy arrival of new potential inhabitants and / or low discount rates, competing developers are more likely to concentrate rich people in the same neighborhood. This happens because the beneÖts from early agglomeration are outweighed by a more proÖtable matching of rich neighbors within nearby lots. 1 Introduction The choice of neighborhood is, together with the choice of marriage couple, one of the most deter- minant decisions in the social and economic life of any individual. Therefore, segregation by income at the neighborhood level has long-lasting e§ects in the dynastic trajectories of those favored and disfavored by the environment they live in. In this paper we propose a framework in which, from a purely positive - as opposed to normative - point of view, we can analyze the dynamic conditions in which new integrated or segregated neighborhoods arise. As it is well-known, the endogenous processes of social sorting or scrambling have been already extensively studied by the profession. Early pioneers, like Schelling (1978), were able to vividly