B. Neighborhoods

1.  Segregation

a.  Measurement

• Dissimilarity Index - the proportion of members of one group that would have to change their area of residence to achieve an even distribution

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• Ex. - City of San Diego

• U.S. Bureau of the Census

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b.  Income segregation

• Low income households - Dissimilarity Index = 27 - 47 in large metro areas, 17 - 49 in all metro areas

• Becoming more segregated by income over time

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c.  Education segregation

• High school dropouts - Dissimilarity Index = 24 - 45 in large metro areas, 10 - 50 in all metro areas

• College graduates - Dissimilarity Index = 28 - 43 in large metro areas, 14 - 44 in all metro areas

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d.  Racial segregation

• Metropolitan areas becoming slightly less segregated

• Actual distribution of U.S. population:  58 percent White, 14 percent Black, 19 percent Hispanic, 7 percent Asian

2.  Sorting for local public goods

a.  Diversity in demand for local public goods

• People will differ in their desired levels of local public goods

• Ex. - Police and fire, parks, libraries, class sizes

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• Voting leads to median quantity chosen

• Most people will be unhappy with the result

• Leads to people moving to cities with the desired level of local public goods (Tiebout hypothesis)

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b.  Diversity in demand for a taxed good

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• Leads of people sorting by both level of public goods and level of taxes

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3.  Bidding for favorable neighbors

a.  Neighborhood externalities

• Caused by interactions among neighbors

• Could be positive or negative

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(1)  Children

• Role models

• Peer groups - children learn more when they are surrounded by other children who are motivated and focused

• Social interaction within groups - could be positive (sports teams) or negative (gangs)

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(2)  Adults

• Social interaction

• Networking

• Could be negative, e.g., drug use

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b.  Equilibrium

• Equilibrium determined by competitive bidding for land

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(1) Segregation equilibrium

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(2)  Integration equilibrium

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(3)  Mixed neighborhoods

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(4)  Lot size and public policy

• Suppose lot size can vary

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• Minimum lot size used to control land use, could lead to segregation

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