[Séminaire CREM] "Residential Choice, Credit Market Imperfections and Persistent Inequality" - Faculté des Sciences Economiques

Abstract: We investigate how credit market imperfections affect households' residential choice, house prices and the dynamics of the wealth distribution. With this aim, we develop a canonical monocentric city model with two key features: a borrowing constraint and intergenerational transfers. Each one-period-lived household chooses where to locate but the borrowing constraint restricts location choices. This leads to spatial wealth sorting: wealthier households reside closer to the most attractive locations. We show that the bequest is location-dependent and that the spatial sorting perpetuates along the transitional path. Credit market imperfections are also a source of symmetry-breaking (Matsuyama, 2006), leading an initially homogeneous population to endogenously split into different wealth classes. Two long-run equilibria can arise. Either no household is constrained and wealth is equally distributed among the population. Or the society is polarized into constrained households and non-constrained households. Thus, spatial sorting translates into persistent inequality.

Co-écrit avec Roberto Brunetti (CREM) et Carl Gaigné (SMART, INRAE, CREATE)