Residential income segregation: A behavioral model of the housing market

Marco Pangallo (), Jean-Pierre Nadal () and Annick Vignes ()

Journal of Economic Behavior & Organization, 2019, vol. 159, issue C, 15-35

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 in 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; Spatial segregation; Aspiration level heuristic; Income inequality (search for similar items in EconPapers)
JEL-codes: C63 D31 R23 R31 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Related works:
Working Paper: Residential income segregation: A behavioral model of the housing market (2019)
Working Paper: Residential income segregation: A behavioral model of the housing market (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:159:y:2019:i:c:p:15-35

DOI: 10.1016/j.jebo.2019.01.010

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