Neighborhood Dynamics and the Distribution of Opportunity

Dionissi Aliprantis and Daniel Carroll

No 1525, Working Papers (Old Series) from Federal Reserve Bank of Cleveland

Abstract: Wilson (1987) argued that policies ending racial discrimination would not equalize opportunity without addressing residential sorting and neighborhood externalities. This paper studies related counterfactual policies using an overlapping-generations dynamic general equilibrium model of residential sorting and intergenerational human capital accumulation. In the model, households choose where to live and how much to invest toward the production of their child?s human capital. The return on parents? investment is determined in part by the child?s ability and in part by an externality determined by the human capital in their neighborhood. We calibrate the model with two neighborhoods and neighborhood-specific production technologies to data from Chicago when mobility was restricted by race. We then conduct three numerical experiments by eliminating the restriction on neighborhood choice, equalizing production technologies, or both. We find that allowing residential mobility generates persistent income inequality, even when technologies are equalized across neighborhoods. Equalizing technologies only equalizes opportunity for residents in the originally segregated neighborhood when high-income households reside there. Our findings suggest that policies aimed at improving outcomes in impoverished areas should feature incentives for high-income households to stay or migrate into the neighborhood.

Keywords: Neighborhood externality; Segregation; Human Capital; Diversity (search for similar items in EconPapers)
JEL-codes: D31 D58 E24 J24 R23 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2015-10-22
New Economics Papers: this item is included in nep-dem and nep-dge
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Neighborhood dynamics and the distribution of opportunity (2018)
Working Paper: Neighborhood dynamics and the distribution of opportunity (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedcwp:1525

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DOI: 10.26509/frbc-wp-201525

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