Segregation 5 Flashcards
(7 cards)
What does the sorting model of segregation focus on?
The model studies segregation using two neighborhoods and two groups (12 households in each group). The allocation of residents across these neighborhoods is determined by competitive bidding for land, with rents within each neighborhood being the same.
What assumptions are made in the simplified model of segregation based on Becker and Murphy (2000)?
There are two neighborhoods and two groups (12 households in each group). Residents’ allocation across neighborhoods is determined by competitive bidding for land. Rents within each neighborhood are the same.
What is the definition of equilibrium in the sorting model of segregation?
No incentive for residents to switch to the other neighborhood (no further swaps possible). No vacancy; all residents have a residence.
What is the difference between stable and unstable equilibrium in the sorting model?
Stable Equilibrium: Adding one resident from a different group does not change the equilibrium. Unstable Equilibrium: Adding one resident from a different group changes the equilibrium.
Bid premium
(often plotted on the vertical axis) is each household’s willingness to pay extra to live in the West neighborhood instead of the East. Formally it’s
where is the (implicit) rent that a given household would pay in West, and is what that same household would pay in East. A higher bid premium means that household values West relatively more strongly.
Rent differential
(or simply “differential”) is the actual market gap between West’s equilibrium rent and East’s equilibrium rent—in other words,
At an equilibrium composition, the marginal bidder’s bid premium exactly equals this rent differential, so that household is just indifferent between paying the West rent or the East rent.
