Ethnic Segregation and Ghettos

Abstract

Throughout history cities have contained separate areas where ethnic groups are concentrated. In the U.S. many older cities in the Northeast and Midwest contain large African-American ghettos. We discuss the causes and consequences of ethnic and racial segregation. We identify differences between voluntary and involuntary ghettos and we understand them using agglomeration economies, positive and negative externalities, bid rent theory, land and labor markets. We show that sharply segregated urban land use patterns can be socially efficient or inefficient depending on the nature of preferences and the externalities. Exclusionary policies often capture the economic efficiency. We observe a bewildering variety of political and public policy responses to segregation in Brazil, Cyprus, Europe, India, Israel, South Africa and the United States.