Friday, October 9, 2009: 4:15 PM
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 flow 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 benefits from early
agglomeration are outweighed by a more profitable matching of rich neighbors within nearby
lots.