Regular Article
Expectations and the Timing of Neighborhood Change

https://doi.org/10.1006/juec.2001.2246Get rights and content

Abstract

We study the role of expectations when agents have a preference for segregation and households face moving frictions. In a fixed environment, there are multiple equilibria: agents' expectations determine whether an ethnic transition occurs. However, the outcome is unique if there is a deterministic trend that gradually makes the neighborhood more appealing to the outside group. It is also unique if the relative payoff from living in the neighborhood is subject to small shocks. In both cases, the insiders must leave at the first possible moment: when the outsiders would outbid them if an immediate ethnic transition were expected.

References (17)

  • E.W. Bond et al.

    Externalities, filtering, and neighborhood change

    Journal of Urban Economics

    (1989)
  • P.N. Courant

    Racial prejudice in a search model of the urban housing market

    Journal of Urban Ecomonics

    (1978)
  • M.J. Bailey

    Note on the economics of residential zoning and urban renewal

    Land Economics

    (1959)
  • R. Bènabou

    Workings of a city: Location, education, and production

    Quarterly Journal of Economics

    (1993)
  • R. Bènabou

    Equity and efficiency in human capital investment: The local connection

    Review of Economic Studies

    (1996)
  • K. Burdzy et al.

    On the time and direction of stochastic bifurcation

  • K. Burdzy et al.

    Fast equilibrium selection by rational players living in a changing world

    Econometrica

    (2001)
  • W.A.V. Clark

    Residential preferences and neighborhood racial segregation: A test of the Schelling segregation model

    Demography

    (1991)
There are more references available in the full text version of this article.

Cited by (18)

  • Immigrant locations and native residential preferences: Emerging ghettos or new communities?

    2019, Journal of Urban Economics
    Citation Excerpt :

    As in global or network games (Carlsson and Van Damme, 1993; Jackson and Yariv, 2007), the decision to flee by natives may endogenously depend on the formation of higher order beliefs about the expectations of other natives in their neighborhoods or networks. Native flight could be more likely when most natives believe that their current neighborhood will tip and that potential destination neighborhoods are safe from ethnic intrusion, a point made theoretically by Frankel and Pauzner (2002). The environment in our research was likely to make segregationist coordination difficult.

  • Dynamic coordination among heterogeneous agents

    2017, Journal of Mathematical Economics
    Citation Excerpt :

    They base their analysis on a model of sectorial choice as in Matsuyama (1991). Similar frameworks have been used to study neighborhood choices (Frankel and Pauzner, 2002), carry trades and speculation (Plantin and Shin, 2006), speculative attacks (Daniëls, 2009), business cycles (Frankel and Burdzy, 2005; Guimaraes and Machado, forthcoming) and efficiency in settings with network externalities (Guimaraes and Pereira, 2016).1 The paper is related to the literature on coordination in games with strategic complementarities.

  • Efficient ex-ante stabilization of firms

    2017, Journal of Economic Theory
    Citation Excerpt :

    This property makes global games useful for studying aggregate fluctuations and crises. Applications include bank runs and international contagion (Goldstein and Pauzner, 2004, 2005), currency crises, debt pricing, and market crashes (Morris and Shin, 1998, 2004a, 2004b), search-driven business cycles (Burdzy and Frankel, 2005), investment cycles (Chamley, 1999; Oyama, 2004), neighborhood tipping (Frankel and Pauzner, 2002), and merger waves (Toxvaerd, 2008). The investment subgame played by the agents in our model is a global game.

  • QWERTY is efficient

    2016, Journal of Economic Theory
    Citation Excerpt :

    This paper builds on the model of Frankel and Pauzner (2000). They base their analysis on a model of sectorial choice (along the lines of Matsuyama, 1991), but their framework has been used to analyze location choices (Frankel and Pauzner, 2002), carry trades and speculation (Plantin and Shin, 2006), speculative attacks (Daniëls, 2009) and business cycles (Frankel and Burdzy, 2005; Guimaraes and Machado, 2015).3 The model of currency attacks in Guimaraes (2006) and the model of debt runs in He and Xiong (2012) employ similar timing frictions.4

  • Blockbusting: Brokers and the dynamics of segregation

    2015, Journal of Economic Theory
    Citation Excerpt :

    There is substantial evidence that brokers steer—i.e., match—minority and white buyers and sellers to particular houses, particular households, and/or particular neighborhoods (Turner and Mikelsons [36], Ondrich, Ross and Yinger [30]). Yet dynamic models of urban segregation (Schelling [33], Benabou [6,7], Becker and Murphy [5], Frankel and Pauzner [19]) do not explain whether brokers have an incentive to match sellers to same-race buyers or to buyers of another race; and when brokers have incentives and are able to substantially change a neighborhood's racial composition. This paper focuses on the ability and the incentives of a real estate broker to engage in blockbusting.

  • Recurrent crises in global games

    2012, Journal of Mathematical Economics
View all citing articles on Scopus

We thank seminar participants at Bar-Ilan University, Stanford University, and Tel Aviv University for helpful comments and the Pinhas Sapir Center for Development for financial support.

View full text