Local Spillovers, Segregation, and Racial Gaps in Educational Attainment

Abstract

Access to high-quality neighborhoods is an important determinant of adult outcomes. However, racial segregation and disparities in school quality are predominant features of many American cities. We incorporate race into a spatial equilibrium model in which households choose where to live and the characteristics of their neighborhood impact the educational attainment of their children. Neighborhood differences in race, school quality, rent, and local spillovers arise endogenously as households sort between neighborhoods. Counterfactual exercises show that the Black-White wage gap and household preferences over the racial composition of their neighborhood, known as homophily, are both important forces generating segregation and racial disparities in educational attainment.