Schelling′s model revisited: Residential sorting with competitive bidding for land

In the Schelling model of residential sorting, preferences for neighborhood mix are expressed in terms of tolerance of unlike neighbors, and an agent moves when its tolerance threshold is exceeded. In this paper, agents' preferences for neighborhood mix are represented by bid-rent functions, and lots are allocated to the highest bidders. The agent-based simulation model shows that segregation occurs even if households prefer integrated neighborhoods, and the inefficiency of segregation is shown by a lower aggregate willingness to pay for land. The degree of segregation (measured by the dissimilarity index and the entropy index) varies with the share of agents who are indifferent about neighborhood mix. Several public policies-random assignment of agents to lots, minority subsidies, and side payment from neighborhood associations-promote integration and increase the aggregate willingness to pay for land. To explore the dynamics of segregation under different policy regimes, run the agent-based model online: http://www.lclark.edu/~arthuro/SortModelNew.html.