Stratified zoning in central cities

Abstract

I model a central city where citizens differ by income, and housing confers benefits on neighbors. Zoning separates citizens into neighborhoods by income. This maximizes total surplus and facilitates redistributing gains to a majoritarian governing coalition of citizens, which changes from rich to poor as the city grows. Non-members of the coalition may form suburbs. These theoretical results are supported by empirical facts compiled by Schnore and Varley (1955). It is difficult to justify stratified zoning on Paretian grounds, even when a municipal government can redistribute income. If stratified zoning is not a Pareto improvement before gains are redistributed, it will not be afterward under majority rule. Gains in total surplus increase as the distribution of income becomes less equal, which helps explain why neighborhood stratification has outpaced stratification of income in U.S cities in recent decades, as documented by Booza et al (2006) and Sampson (2016).