Article ID Journal Published Year Pages File Type
971161 Journal of Urban Economics 2014 12 Pages PDF
Abstract

Using a simple adverse selection model, we characterize equilibrium when the rich chase the poor. If communities are established by competitive entrepreneurs, the equilibrium exists, is unique, and is efficient. It involves either complete separation, or complete pooling. Different income groups may rank these qualitative outcomes differently. We show how restrictions imposed by a central government may alter the nature of equilibrium: such restrictions may be explained as the choice of a low-income majority altering the equilibrium to the pooling outcome which they prefer.

Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
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