Measuring the Average Outcome and Inequality Effects of Segregation in the Presence of Social Spillovers

TL;DRAbstract

In this paper we analyze the causal e¤ects of reallocating individuals across social groups of varying sizes in the presence of social interactions or spillovers. We consider the case where individuals are either ‘high’or ‘low’types. Own outcomes may depend on the fraction of high types in one’s social group. We characterize the average outcome e¤ect and inter-type inequality e¤ects of ‘local’ increases in segregation. We also characterize average outcome-maximizing and -minimizing allocations of individuals to groups. We relate our estimands to the theory of sorting in the presence of social interactions. For each estimand we provide conditions for identi…cation. We also propose nonparametric estimators and characterize their large sample properties. JEL Classification: C14, C31, D62, I21

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