Meng Li, Hunan University

Fri. Feb. 9 02:30 PM - Fri. Feb. 9 04:00 PM
Location: 3BC55

"Income Heterogeneity and Residential Sorting: An Assignment Model Approach"

Abstract: This paper studies the spatial distribution of income and housing in cities. I develop an assignment model approach to the monocentric city model with a continuous income distribution and endogenous housing supply. Each household chooses a location as well as the quality of housing services, and the net costs to travel to the city center are non-homothetic. The model delivers novel predictions on imperfect sorting of income across locations: households at both ends of the income distribution tend to locate closer to the city center, choosing different qualities of housing services. In a set of comparative static analysis, we show how exogenous changes, such as population growth, increase in available land, and rising inequality, affect internal city structure and different housing segments within a city. In this framework, top-income growth can cause changes in equilibrium outcomes that resemble the recent gentrification phenomenon: high-quality, expensive houses are built at central locations, and many of the earlier, low-income residents move to lower-quality houses, or non-central locations.