Wednesday, May 25, 2016

The power of mild preferences

I have blogged earlier, pointing to the famous Schelling chessboard experiment, about how even mild preferences (among agents) can have surprisingly large macro-level general equilibrium effects. 

My examples focused on school choice and the use of vouchers - this on the dynamics associated with how school choice ends up enfeebling public systems and this on how voucher advocates confuse the merits of vouchers with the relative superiority of private schools. Intuitively school vouchers should be great - they enable choice and lets parents seek out the best schools, thereby fostering school competition and generating desirable outcomes all round. Surprisingly, the evidence from across the world (US, Chile, Colombia, Mexico, Sweden etc) in terms of improving learning outcomes (test scores), retention rates, and years of schooling is very mixed. In fact, in the most recent study from New Orleans (post-Katrina) reveals that it lowered learning outcomes. 

Now, Allison Shertzer and Randall Walsh examine neighborhood-level data to study segregation in US cities over the 20th century and comes to similar conclusions. They point to a similar trend contributing to the distinct US urban segregation pattern of white suburbanization and black core, 
Whites began resorting themselves away from black arrivals in the first decades of the 20th century, decades before the opening of the suburbs. Our analysis isolates the channel of white flight from institutional barriers that constrained where blacks could live in cities. We argue that accelerating white population departures in response to black arrivals at the neighbourhood level can explain up to 34% of the increase in segregation over the 1910s and 50% over the 1920s. Importantly, our analysis suggests that, while discriminatory institutions faced by blacks were clearly important, segregation may have emerged in US cities even in their absence simply as a consequence of market choices made by white families... Our results indicate that one exogenous black arrival was associated with 1.9 white departures in the 1910s and 3.4 white departures during the 1920s.
Their conclusion is very important,  
Policies that reduce barriers faced by blacks in the housing market may not prevent or reverse segregation as long as white households continue to resort themselves away from potential black neighbours.
But there may be one more wrinkle to this story. Such policies, whether in housing or schooling, is unlikely to directly achieve its desired objective of increased mixing among communities. But what if the desegregation contributes to attenuating preferences and making mixed habitations less unacceptable? What if it contributes to greater social integration? What if, over a long period of time, the general equilibrium effect in favor of social integration is greater than the similar effect towards segregation? 

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