2008 Reports

The Racial Geography of Vice

O'Flaherty, Brendan Andrew; Sethi, Rajiv

Street vice (anonymous prostitution, gambling, and the sale of illicit drugs) is spatially concentrated, confined largely to black neighborhoods in central cities, even though demand is quite evenly distributed throughout the general population. We show how this pattern can arise through the interacting location decisions of sellers, buyers, and non-user households. Areas with high demand density (cities) have lower prices and more tightly packed sellers in equilibrium relative to areas with lower demand density (suburbs) under autarky. When trade between city and suburb is possible, competitive pressure from the city lowers suburban prices and seller density. Higher income households distance themselves from street vice, causing the exposed population to become poorer and disproportionately black. Even mild preferences over neighborhood racial composition can then induce lower income whites to exit, resulting in racial segregation. The relationship between segregation and exposure to vice can be non-monotonic and discontinuous: decreased segregation implies greater sorting by income, and hence larger wage disparities between city and suburb. If such disparities get too large, all sales can shift discontinuously to the city and result in higher overall black exposure even though more blacks now reside in the suburbs.