LAUSR

Both sorting on public goods and tastes for segregation contribute to the persistence of segregation in America. Incorporating Schelling’s (1969, 1971) concept of “neighborhood tipping” into a two-stage equilibrium sorting model, in which both neighborhood demographic composition and public goods (e.g., environmental quality) affect households’ residential location choice, this study investigates how preferences for neighborhood demographic composition could obscure the role of exogenous public goods on segregation. The results reveal that non-white households face higher level of exposure to air pollution, suggesting the presence of environmental injustice in Franklin County, OH. Using a counterfactual scenario of switching off heterogeneous taste for environmental quality, this study identifies that sorting on Toxic Release Inventory (TRI) emissions drives little correlations between emissions and demographics. However, when taste parameters of the interactions between neighborhood demographic composition and household race are eliminated, segregation (as measured by over-exposure to households of the same race) of black and white households decreases by 7.63% and 16.36%, respectively, and own-race neighbor preferences contribute to segregation differently according to household income. These results may help explain some recent puzzles in the relationship between environmental quality and demographics.