Investigating The American Dream: The Role Of Neighborhoods | Hoover Institution
We explore the relationship between residential segregation, income inequality, and intergenerational mobility. Using geo-coded NLSY data, we first document that US cities that display a higher level of residential segregation by income also exhibit a significantly lower degree of intergenerational mobility. We then develop a simple general equilibrium model with residential choice in the presence of local spillovers to explore this relationship. Children with higher innate productivity have higher return from the spillover’s exposure, but only richer parents can afford the high-spillover neighborhood. We show that the decentralized equilibrium generates less intergenerational mobility than what a utilitarian planner would prescribe and that a simple transfer policy targeting low-income agents can improve welfare upon the equilibrium, but not restore efficiency. Finally, we show that when local spillovers evolve endogenously as a function of the distribution of families that sort in the two neighborhoods, the link between residential segregation and intergenerational mobility becomes even stronger.Featuring Marta Prato, Visting Fellow at the Stanford Institute for Economic Policy Research (SIEPR) and Assistant Professor of Economics at Bocconi University.
To read the slides, click the following link
https://www.hoover.org/sites/default/files/2026-02/260211_EPWG_slides.pdf
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