The Location of the Poor in a Metropolitan Area : Positive and Normative Analysis

We seek to explain the stylized fact that poor households form the majority in the inner city of most American metropolitan areas. Using numerical simulations, we show that (1) typically there exist two equilibria: One in which the poor form the majority in the inner city and the other in which the rich form the majority; (2) when the metropolitan population is small, rich households "jump to the suburb" to obtain their desired public service, and this causes the growth path to select the equilibrium in which poor households are the inner city's majority; (3) whether having the poor form the inner city's majority is desirable depends on the metropolitan population and on whether efficiency or equity is the normative criterion