JOURNAL

OF URBAN

ECONOMICS

2, 85-103 (1975)

Racism and Urban Structure

SUSAN ROSE-ACKERMAN

Institution for Social and Policy Studies and Department of Economics, Yale University, New Haven, Connecticut 06520 Received October 12. 1973 This paper begins the task of integrating models of racist behavior into general theories of urban land use. The paper derives equilibrium prices for a racist city and demonstrates that the city is less dense at the core, more dense in the suburbs, and covers a larger area than an unprejudiced city. A more complex theory of housing supply is then developed, and it is shown that racisms impact on the ghetto depends upon the ease with which maintenance can be reduced, the cost of replacing abandoned housing, and the nature of legal controls on housing quality.

I. INTRODUCTION With few exceptions, economic analysesof racial discrimination in housing markets have not been systematically integrated into a theory of urban structure and land use.2Indeed, much of the literature assumeswithout sustained analysis that blacks pay more for housing becauseprejudice restricts supply and simply attempts to estimate the size of the price mark-up. Richard Muth [ 12, pp. 106-l 121, following a suggestion of Martin Bailey [2], has made one of the few attempts to develop a logically consistent model of the demand side of a racist housing market.3 Using this model, Muth argues that racial prejudice lowers the price of housing available to blacks. Muth, however, fails to consider explicitly how suppliers respond to racial prejudice and hence ignores racisms broader consequencesupon the distribution and density of the urban population. The first half of this paper (Sections II-IV) formalizes Muths theory of racist behavior in the context of a general urban housing
1This paper was financed by NSF Grant No. GS-39,671. The author thanks Bruce Ackerman, Edwin Mills, Richard Muth and Robert Pollak for helpful comments on an earlier draft. 2The exceptions stress the importance of housing market discrimination in restricting the employment choices of blacks. See [5] and [B]. 3 Muths theory of racial discrimination is not the only one which is plausible. Other theoretical attempts that take a different perspective include [3], [7], [15], [16], and [17]. For empirical work that is closely related to Muths model see [9] and [lo]. 85
Copyright 0 1975 by Academic Press. Inc. All rights of reproduction in any form reserved.

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model of the type commonly used in recent work. After showing how the price-distance function for housing is affected by racial prejudice, the paper demonstrates that a prejudiced city is less dense at the core, more dense in the suburbs and covers a larger area than its unbigoted counterpart. In the second half of the paper (Sections V and VI), a model is developed which takes into account the fact that most of the housing stock consists of old units depreciating over time. This model makes it possible to refine the analysis of supplier behavior and to discuss the impact of racism on the density, quality and price levels of housing in the ghetto. Two variants of the model are compared-one in which maintenance can be varied and one in which a housing code determines the maintenance inputs required. It is shown that when the law requires suppliers to maintain a minimum level of housing services, blacks gain more from prejudice than when suppliers are free to adjust maintenance levels or abandon properties. II. THE MUTH FRAMEWORK

Muths model (like all other theoretical discussions of racial prejudice) assumes that bigotry per se has no impact upon the supply of housing. His demand oriented model focuses upon two types of people: whites who have an aversion to living near blacks and blacks who do not care where they live.4 Thus, whites bid more than blacks for housing in predominantly white areas, leading to two racially distinct neighborhoods with a common border. Except along the black-white border the black neighborhood is assumed to be surrounded by land that cannot be used for housing. If quality adjusted housing prices are initially equal in the interior of the white and black neighborhoods, blacks can outbid whites along the border. If landlords are profit maximizers, and if there are no costs of converting housing from white to black use and no collusion, housing changes hands and the border moves away from the center of the black neighborhood until the prices that blacks and whites are willing to pay are equal at the border. In equilibrium, when prices are equal at the border, white interior prices must be higher than white border prices since whites prefer to be surrounded by households of their own race. It follows that rents in the black neighborhood are lower than in the white interior, and lower also than equilibrium prices in the absence of prejudice. III. A MODEL OF THE HOUSING MARKET NO RACIAL PREJUDICE WITH

In the present section, a simple model of the housing market in an unprejudiced city is developed to provide the groundwork for introducing racism in Section IV.
4One could also assume, as Muth does [12, p. 1081, that blacks prefer to live next to whites, but this assumption is not necessary if the black market area is restricted.

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A. Demand

The simple model explicated here uses some standard assumptions employed by many workers in the field and exemplified in [12]. Thus it is assumed that a households utility level depends upon its consumption of two mutually exclusive groups of commodities-housing and all other goods except location; that the prices of other goods do not vary by location; that the variable cost of transport increasesat a nonincreasing rate with distance from the central business district (CBD); that each household makes a fixed number of trips to and from the CBD per unit of time; that transport costs are the samein all directions, and that all jobs are located in the CBD within a small circle of radius v miles.5 If housing services per unit of time can be represented by a single variable, q, that is a weighted average of housing attributesfi then the individual household chooses its residential location by maximizing its utility function U = L/(x, q) subject to the constraint x + p(k)q + w, y) - y = 0. where = spending per unit of time on all commodities except housing and transportation but including leisure. = consumption of housing per unit of time. 4 k = distance from V, the boundary of the CBD. Transportation is assumedto be costlesswithin the CBD. p(k) = price per unit of housing at k. T = cost of travel to and from the CBD per unit of time, Tk > 0, (T includes both out-of-pocket costs and the opportunity cost of time). Y = income per unit of time. The maximum occurs where
X

Uz = U,/p(k) and
- pk = Tn or pk = (- l/q)T, < 0.

(1)
(2)

In order for an equilibrium to exist, the price of housing must fall with distance, and stability requires that -qpk fall more rapidly then Tk. Otherwise, households could benefit from moving either closer to or further from the city [12, pp. 24-251.
6 Muth [12, pp. 17-211 drops some of these simplifying assumptions in later portions of his book, but these modifications will not concern us here. 6This formulation follows Mills [ll, p. 2011 and Muth [12, pp. 18-191. 7 Muth [12, pp. 21-221. The following paragraph reproduces Muths results for readers unfamiliar with his work. Muths formulation differs from the slightly more complex model of Alonso [l] where distance, k, enters the utility function directly.

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ROSE~ACKERMAN

The supply side is also derived from Muth [12, pp. 47-491 and is a simple competitive market in which all housing inputs are variable. Suppliers at each k combine three inputs: land, L, structural inputs, S, and maintenance inputs, M, in order to produce housing. Housing is not divided into discrete units, so that supplier i located at distance k can costlessly subdivide the total @(k) he supplies to provide any q(k) desired by an individual household. All land beyond v is zoned for residential or agricultural use. Since there are no alternative usesfor land beyond v except farming, profits per unit of time for producer i at k are
z-i(k) = p(k)Qi(k) - r@&(k) - s&(k) - mMi(k), (3)

so long as r(k) > P where Qi(k) = Q&W), S(k), M(W), r(k) = land rent per acre at k, p = maximum rent per acre obtainable from agriculture, s = price of structural inputs, and m = price of maintenance inputs. The prices ?, s, and m are independent of k. Producers maximize profits by equating the price of each factor to the value of its marginal product. Hence, r(k) = Ak)QL,, m = p(k)QM,, s = p(k)Qsi. (da) (4b)
(4c)

Where QL~, QM~and Q,si are the marginal products to the ith producer of
L, M, and S, respectively. In a competitive market profits must be equal for producers at all k, a fact which, as Muth has shown in a similar model

[12, p. 491, makes it possible to specify the relationship between land rent and housing price as rk/r = (dPL)(Pk/p),
C. Market Equilibrium:

where pi = lands share.

(5)

Incomes Equal

Market equilibrium occurs when total demand for housing equals the total supply. This equilibrium can be specified if strong assumptions are made about consumers. If the number of workers is exogenous, if every household contains a single worker, and if all households have equal incomes and identical tastes, then the equilibrium price at each k must be one such that households are indifferent between locations. If pi(k) is the pattern of prices which

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would prevail if consumers attain utility level Uj, then the housing demanded by each household at k, qj(k), is uniquely determined. Every household has a family of bid-rent lines pi(k) with pk < 0, each corresponding to a different level of utility. (The higher is pj(k) the lower is utility).8 The supply of housing at k when pj(k) representsthe market price is

where Qij(k) is the quantity supplied by the ith producer at distance kgiven pi(k), and nk is the number of producers at k. The maximum number of households that can be accommodatedat any k is then, Ni(k) = (Qj(k)/qj(k)). Assuming that i& is the distance at which rj(L) = P when pi(k) holds, the maximum number of households that can be accommodated for somepi(k) is Lj Nj = s0
Nj(k)dk.

Equilibrium in the housing market occurs for pi(k) such that H = Nj where H = number of households. If H > Nj, there is excess demand and pj(k) must rise and conversely, for H < Nj. IV. RACIAL PREJUDICE IN THE HOUSING MARKET A. The Location of Blacks in a City Without Prejudice In order to introduce racial prejudice into the model it is necessary to specify the behavior of black households in a city with unprejudiced whites. The notion of a city without prejudice is, however, ambiguous. On the one hand, if no prejudice has ever existed in any area in life, and if blacks and whites are equally productive, membersof both raceshave equal incomes, and so long as they have equivalent tastes, blacks are distributed randomly throughout the housing stock. On the other hand, if blacks are discriminated against in education and in jobs but not in the housing market, they have lower average incomes and hence trade off accessibility and housing differently from whites. The impact of introducing prejudice in the housing market differs in each case. In the first case since black income levels equal white levels, Muths analysis implies that blacks occupy a self-contained section of the city which could be either a pie shaped wedge or an annulus. Blacks, however, pay lower rents at each distance than whites living at the samedistance but located in the white interior. Although blacks are indifferent to the location of their
8The best discussion of bid-rent lines is found in Alonso [l].

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SUSAN ROSGACKERMAN

self-contained neighborhood, whites prefer to have blacks living in a ring around the CBD in order to minimize the length of the black-white border. In the second case, even if the tastes of blacks and whites are identical, blacks have different bid-rent functions from whites because of the blacks lower income. Empirical work indicates that the income elasticity of the demand for housing is greater than one9 which, under plausible assumptions, implies that the bid-rent functions of the wealthy are flatter (i.e., the absolute value of the slope is lower) than those of the poor [12. p. 291. As a consequence, the blacks, because of their relative poverty, would live closer to the center of the city than the whites. Hence blacks occupy a compact section of the city even if no prejudice exists in the housing market. When white prejudice is introduced, the black neighborhood includes additional housing at the border between the black and white neighborhoods. In this paper it is assumed that blacks would live in the city center even if no prejudice existed in the housing market. Such an assumption is reasonable since average black income levels are lower than those of whites, with the difference plausibly attributed to discrimination in education and jobs. B. Market Equilibrium with Lower Class Blacks (1) The unprejudiced city. In an unprejudiced city where low income blacks occupy the city center, the equilibrium pattern of prices can be determined in a simple manner. Given any bid-rent curve for blacks, pj(k), with corresponding household demands, q,R(k), and housing supplies, Qj(k), we have: Nj(k) = Q,(k)/qJR(k), where N,R(k) is the number of black households that can be accommodated at k. Given H, the total number of black households, the edge of the black neighborhood is at bj (where bj is measured in miles from the border of the CBD) such that H = J0 Let pjW(k) be the white bid-rent function that passes through [bj, pjB(bj)]. This bid-rent function implies a particular qJU3(k),Qj(k) and Nj(k) = Qj(k)/ q(k) for each k > bj. Because of higher white incomes, white demand is greater at any price than black demand, and therefore density of settlement falls discontinuously at the black-white border. Letting ii Njw = .I bj and P = number of white households, the bid-rent lines pjB(k), pj(k)
are

bi NiB(k)dk.

Njlli(k)dk,

9 Muth [ 131 and Reid [ 141 find income elasticities between one and two. Not all wealthy households, however, have a high income elasticity of demand. See [4].

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the equilibrium price lines if NjzL = Hw. If Njw > Hw, excesssupply exists and p(k) and pB(k) must fall (b must rise) to establish equilibrium. Conversely, if Njw < Hw excessdemand exists and prices must rise (b will fall). (2) The racist city. If white households are prejudiced, they are both attracted to and repelled from the CBD. Although the utility function for blacks has the same form as that assumed above, UB = .P(x, q), whites utility functions include the distance to the black-white border as an argument: Uw = Uw(x, q, k - b). The whites budget constraint is x + p(klq + T(k, v) - Y = 0. Maximizing Uw subject to the budget constraint yields
uz = uq/P = Uk-b/(pkq + Tk),

(6)

or (7) Since U&-b > 0 and U, > 0, prices in the white neighborhood fall more slowly than in the unprejudiced city and may even rise with k over a certain range beyond the black-white border. Ifpk > 0 at b, then white prices increase with k until Tk = uk-b/uz. Beyond this point they fall with k, approaching the rate of change of white housing prices in an unprejudiced city so long as the marginal utility of moving an extra mile away from the black-white border falls as k increases.If p?(k), pow(k), and b. in Fig. 1are the equilibrium price lines and border with no prejudice and if poR(k) is the price schedule for prejudiced whites such that at bo, poR(bo) = poB(bo) = pow(bo), then NoR > Hw i.e., there is excesssupply ifpoR(k) holds, and equilibrium can only be established through a fall in pB(k) and pR(k) and an increasein b to accommodate the increased black demand. The equilibrium white bid-rent function,
pk = [Uk-b/Uz]/q.

Tdq +

I b.,
FIGIJRE 1.

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p ik,

SUSAN ROSE- ACKERMAN

FIGURE 2.

plR(k) in Fig. 2, cannot, however, be below p,,(k) for all k or elseNIR < Hw. Therefore, plR(k) must cross pow(k) at some point, kr, and racist whites pay lower prices in border regions than whites in a city without prejudice, but pay higher prices in outlying areas. The price difference between a racist and a nonracist city is larger the more intense is white prejudice and the more slowly Uk-,, falls with distance from the border. It follows that the area of a racist city is larger than that of a nonracist one since the higher equilibrium level of housing prices beyond kl in a prejudiced city implies that f is greater.OFurthermore density is lower in the ghetto of a racist city and also in the white area between bl and kl, but is higher in the white suburbs beyond kl, since prices are lower in the first two regions and higher in the third. Density between b. and b1 is likely to be higher as well because of the shift from high income white to lower income black occupancy. However, the population could be lessconcentrated in this region if blacks have a very high elasticity of demand for housing, or have incomes close to white levels and if prices are much below those that would prevail in an unprejudiced city.
i If the production function is Cobb-Douglas, the price of housing, p, where r(lr) = i is independent of the particular bid-rent line which prevails. Let Q,(k)=ao~,(k)Uls,(k)lM,(k)3 where al + ap + a3 = I. Solving for the marginal products of L, S and M, and substituting in 4a, b and c, gives expressions for p(k), S&r) and M,(k). Substituting for Si and Mi in Qi and for Qi m p(k), we obtain P(k) = (.,,~~:,::.~:~,,.,,,)r(k~l. I* (5) implies that land rents follow the same pattern as housing prices. They rise if p(k) rises and fall if pH(k) falls. However, the land rent gradient is steeper than the housing price gradient and is steeper the smaller is lands share in producers revenues.

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V. A MORE SOPHISTICATED A. Introduction

MODEL

OF THE HOUSING

MARKET

The racist city was introduced in Section IV, using a simple model in which all housing inputs are variable. At any point in time, however, most of the structural characteristics of the housing stock are fixed by earlier construction decisions.12 Thus owners of older housing are faced with the choice of varying maintenance levels, demolishing their buildings, or abandoning their property. If these facts are taken into account, the magnitude of the price benefits obtained by blacks depends upon the ease with which suppliers can react to lower prices by spending less on maintenance or by abandoning unprofitable units. To make this point precise, this section presents a model of the behavior of owners of old housing in a city without prejudice. Prejudice is introduced into the model in Section VI. To develop the problem further, the operation of the housing market will be considered under two hypotheses about supplier behavior. First, owners are assumed to be legally permitted to reduce maintenance levels in any way that maximizes profits. Second, the existence of a housing code is posited, requiring landlords to maintain quality despite the aging of their housing units. It is then possible to define the conditions under which a legal effort to maintain housing quality redounds to the advantage of blacks. Throughout the discussion an effort is made to show how consideration of the existing housing stock modifies the earlier results using a more conventional supply model. B. Basic Assumptions In order to contrast a housing code model with one in which maintenance can be varied, a general framework is required for dealing with a housing stock composed principally of old structures. In the model developed below the age of dwelling units falls with distance from the CBD. The city is assumed to consist of a central circle containing all jobs surrounded by a series of rings, each ring containing housing built in a particular year. No vacant land exists except in the urban fringe beyond some distance k*. There are two groups of suppliers: landlords owning existing housing who (unless prevented by law) choose the level of maintenance that maximizes profits, and builders of new housing who operate beyond k*. All producers have CobbDouglas production functions for housing services in the three inputs:
I2 Long run equilibrium models such as those developed by Mills [I I] and Muth [12] do not deal explicitly with the existing housing stock. The fullest current consideration of existing supply is found in the urban simulation model in [6].

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ROSE-ACKERMAN

L, S, and M. Output at time t for producer i at k is Q,(k, t) = aoLi(k)ulS,(k)az(k,Mi(k, t)as. (8) Producers of new housing at k > k* have identical constant returns to scale (CRTS) production functions where & = 1 - aI - a:+ Owners of old housing have decreasing returns to scale production functions where al + az(k) + u3 < 1. The exponent on S(k), an(k), depends upon the age of the structure and falls as age increases.Since age and distance are inversely correlated, this implies duZ/dk > 0. Producers of new housing maximize the discounted present value of profits. Since L and S must be fixed when the housing is built, if we assume that payments to L and S continue over time and that builders expect all prices to remain constant, the present value of profits to producer i at k is;13 cc ri(k) = p(k)Qi(k,t)eewldt - (rLi(k) + sSi(k)),!w s0 m Mi(k,t)e-wtdt, (9) -m i 0 where w = the interest rate. C. The Variable Maintenance Model 1. Profit maximizing conditions. Equilibrium conditions can now be specified for builders of new homes and for owners of older structures when landlords are permitted to vary maintenance to maximize profits. First, consider new construction. Builders beyond k* maximize (9) with respect to (8). This maximum occurs where Qi(k,t)eewtdt - *
W

= 0,

Wa)

u2(t)Q,(k,t)e-wtdt - = 0,
W

~&)Qi(k,t> ~i(k,t) -

m = 0 for all t.

(lk)

Owners of old housing, however, need only consider returns in the current time period if demolition and new construction are assumedto be impossible. Since S and L are fixed, landlords maximize profits where (IOc) holds for I3We ignoreherethequestion of the optimallife of a housingunit.

RACISM

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t = 0. Equation (1Oc) implies that Mi(k) is an increasing function of p(k). This can be proved by substituting for Qi(k) from (8) and solving for Mi(k):
a3a1

l/a3 M,(k) =-p(k)Li(k)"hsi(kp(") 1.

[

(11)

The partial derivative of Mi(k) with respect to p(k) is obviously positive. Having specified the landlords profit maximizing expenditure on maintenance, the returns to L can be determined given that the returns to S are fixed at s&(k). If vigorous competition prevails throughout the housing market so that profits are forced to zero on all housing, the returns to land are
r(k)L;(k) = (1 - a&(k)Q@) - LX(~). (12)

2. The rate of change of land rent. Since land is not necessarily paid the value of its marginal product, the relationship betweenland rents and housing prices is more complicated than in the conventional model presented in Section II. From (12)

r(k) = (1 - a3 )p(keo - sick> L(k) L(k) Hence, rk = (1 _ a3) pkG [ I And rk Pk P dQiL - = (1 - a:<)-- +--r PL P r dk s d(S,L) r dk * (13)

+ p(k$L]
dk

- $?!?.
dk

Comparing (13) with the analogous result, (5), in the simple model, the rate of change of land rents with distance is no longer a simple function of lands share of total revenue and the rate of change of prices. Land rent falls faster the larger is lands share, the smaller is a3 (i.e., the less productive is M), the faster Q/L falls with k, and the slower S/L falls with k. If S/L falls slowly, then the payment to S falls slowly and fewer funds remain to pay land rents. Similarly if Q/L falls rapidly, this implies that even if lands share is high, the total sum to be divided among all factors including land falls rapidly and hence r must fall rapidly as well. 3. Abandonment and demolition. Similarly, while the conventional model has no place for a treatment of housing abandonment and demolition, the introduction of an aging housing stock requires analysis of these supply responses.When M is variable, abandonment which permits owners to avoid

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SUSAN ROSE-ACKERMAN

all fixed costs only occurs if the required payments to S are so large as to more than exhaust the revenue remaining after maintenance expenses have been paid. In this case nonnegative profits can only be obtained with r(k) < 0. This can occur ifp(k) has fallen over time so payments to S, are large relative to what they would be if the housing were newly built. Even before the abandonment point is reached, however, landowners may induce the owners of older housing to demolish their structures and build new ones. If demolition is inexpensive enough, landowners create incentives for new construction by raising land rents to the level that would be obtainable if demolition occurred. If D is the cost of demolition per unit of land, then landowners set rents at r(k) = max[z [ Qi(k,t)e-J%i9 - D\rv, (1 - ns)p(k)-

Qt(k,O)
L(k)

s&(k) Li(k)

(14)

where QQ is the profit maximizing quantity of new housing. and Q* is the corresponding quantity of old housing. 4. Equilibrium. Given the quantity supplied for every p/(k), pjtc(k) when over all profits are zero, equilibrium in this model is established in the same way as the conventional one (Section IV B(l)), except that new housing is only built beyond k* on land such that r(k) < F. If total demand grows with the passage of time because population or income increases, the equilibrium price line must rise over time, with new construction occurring at the fringes of the urban region. Thus, assuming that no vacant land exists in the interior and that demolition-followed-by-new-construction is not profitable, the model generates a pattern of construction over time that is consistent with the earlier assumption of an inverse correlation between age and distance from the CBD. D. The Housing Code Model Assume now that a housing code requires owners to provide a minimum level of Q even though profits are maximized at lower maintanence levels. To introduce this housing code model, assume that owners are forbidden to abandon their properties and are required to compensate for the falling productivity of structural inputs by a corresponding increase in M so that Qi(k, t) 2 &i(k) for k 5 k*, where &(k) is the level of housing output provided when the unit was new. Landlords are required to substitute M for S as housing ages in order to maintain this minimum Q. Similarly, new construction can occur beyond k* as a means of establishing market equilibrium. If producers of new housing assume that the housing code will be in force in

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the future, then given Mi(k,/) = ao~i(k)alSi(k)zc ~ &i(k)

l/o3

their profits are maximized where

ulp(k)!i(k) ~ - r(k) = 0, L(k)

Wa)

m axp(k) &i(k) s 0

Mi(k,t)-e-dt

2
W

= 0.

(15c)

Since this model is identical to the variable supply version when Ql(k) > Qi(k), it is only necessary to consider the case in which the housing code is binding. When no racial prejudice exists but blacks have lower incomes than whites, the equilibrium bid-rent lines for the housing code model must be below the equilibrium bid-rent lines when M is variable because &(k) > Q(k) for all k < k* and hence, if prices were not lower under the housing code model, supply would outstrip demand. l4 If, however, code enforcement generates abandonment, prices may be higher under a housing code model, especially when the negative externalities generated by vacant dwellings are taken into account. If housing adjoining abandoned housing is judged by households to provide a fraction of the housing services provided by other housing, then if housing at k - e is abandoned, e a small number, the quantity of housing at k becomes A&(k), 0 < X < 1. If X is low enough i.e., if the externalities generated by vacant units are high, then, in equilibrium, housing at k may be abandoned also because the M(k) that would provide zero profits is less the A4 required to produce &(k) units of housing. Of course, if the cost of demolition is low enough, the externalities of abandonment may be eliminated by new construction. This occurs if the r(k) that satisfies
r(k) wag(k) = ~L,(k) .= Qt(k,t)e-Wt J o Dw

is greater than or equal to zero.

I4 While black and white tenants will pay less for each unit of housing service, they may pay more or less for each unit of srructural input provided (measured, for example, as rent per square foot).

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Regardless of whether housing codes generate higher or lower prices, they induce a pattern of settlement that is different from that prevailing under the variable supply model. When M is variable, blacks live in housing with higher ratios of L and S to M relative to the ratios than would obtain with fixed Q. Moreover, when code enforcement generates abandonment, regions close to the CBD are vacant while blacks are densely settled in the adjoining sector in old housing with relatively high levels of maintenance. VI. THE IMPACT OF RACISM IN A CITY WITH AN AGING HOUSING STOCK A. Variable Supply When landlords can vary M, the magnitude of the price benefits obtained by blacks from racial prejudice depends upon the price elasticity of maintenance spending for older housing in ghetto and border regions. The more landlords reduce maintenance in response to lower prices the less difference there is between the equilibrium bid-rent lines for blacks with and without racism. The shape of the equilibrium bid-rent lines is the same as those under the simple supply model (e.g., pP(k), plR(k) in Fig. 2). In the present case, however, new construction only occurs between k* and L1. The ratios of L and S to M are higher than those prevailing in the simple supply model, but the basic result is analogous: less supply in the central section and more in the suburbs. Speaking more loosely, under the variable supply model racism leads to lower quality housing in the ghetto as well as lower prices per unit of both Q and space. B. Housing Codes When housing codes require landlords either to maintain Q(k) at some fixed level &(k) or to abandon their property, the price benefits of racism are smaller the higher the cost of maintaining old housing to code levels, the greater the expense of demolishing old units and replacing them with new construction, and the larger the externalities from abandoned units. The shape of the equilibrium bid-rent lines will be the same as pP(k), plR(k), but there may be a zone of empty houses close to the CBD. C. Variable Supply and Housing Codes Compared While it is relatively easy to demonstrate that blacks pay less for housing when racism exists in either the variable supply or housing code model, a second issue requires a more sustained argument. This section specifies the conditions under which housing code enforcement generates a larger welfare

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gain for black tenants than a free market regime under which landlords are free to vary maintenance. The argument proceeds in three stages.First, it is demonstrated that, when abandonment does not occur, equilibrium utility levels under a housing code cannot be equivalent to those that prevail under the variable supply model. Second, it is shown that, in the absence of abandonment, blacks in a racist city are almost certain to be better off under a regime of housing code enforcement while whites could be worse off. Third, if abandonment with its accompanying externalities occurs, then no definitive welfare statements are possible. 1. The nonequivalenceof equilibrium in the two models. Assume that plB(k) and plR(k) in Fig. 3 are the equilibrium bid-rent lines under the variable supply model. To prove that the utility levels representedby these price lines cannot be the onesprevailing in equilibrium under a housing code model when no abandonment occurs, this section assumesthat the contrary holds and demonstrates that a contradiction exists. Imagine, then, thatplB(k) is also the equilibrium bid-rent line in the housing code model. Since abandonment does not occur, Ql(k) < &(k) for k < bl. Therefore, with code enforcement, total black demand can be accommodated between the border of the CBD and some b2 where bz < bl. Consider now the white bid-rent line that passesthrough b2 which gives whites the same level of utility as plR(k). This bid-rent line, pzR(k) in Fig. 3, is above plR(k) for all k since at every k blacks are further away. Given these bid-rent lines it is possible to establish the contradiction involved in assuming that plB(k) and p&k) establish equilibrium prices in the housing code model. Beyond bl, supply to whites under the housing code model is greater than under the variable supply model since the existence of the housing code implies that &(k) 2 Ql(k) for k < k* and since the higher prices beyond k* induce more new construction. White demand, however,
P k)

I b,

I b, FIGURE 3. k k, i,

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is lower at every k > 61.: Hence the total white population, H, could be accommodated between hl and some k < k,. Therefore, the contradiction is established: either pi(k) or p2R(k) or both must shift to establish equilibrium at some p,:(k), p,(k) where am = plK(b,) and supply equals demand. 2. Relative prices under the two models. It is now possible to specify conditions sufficient to guarantee that black tenants are better off under a housing code than under a variable supply model provided that no abandonment occurs. To do this it is only necessary to determine conditions sufficient for pzR(bz) < plB(b2) (as shown in Fig. 3), since when this inequality holds, equilibrium can only be established with a housing code at piB(k) < pP(k). If only two assumptions are made, the desired outcome can be established. First, assume that pBu < pkB in a city without prejudice. Second, assume that, when prejudice is introduced, the bid-rent functions of whites are separable in the sense that they can be divided into a portion that depends on k - b and a portion that depends on k, p(k). The sufficiency of these conditions can be shown by writing pzR(bz) : plB(bz), as pgR(bz) - plR(bl) $ pP(bz) - ,oP(bl). Since k - b is unchanged between bl and bS, we can write (16) as pl(bz) - pl(bl) : pP(bz) - pP(bl). (17) (16)

Since by hypothesis whites have higher incomes than blacks and have flatter bid-rent functions in the absence of prejudice, this implies, pl(bz) - pl(bl) < pP(bz) - plB(bl), and thus, pzR(bz) < plB@d. (18) The importance of this proof depends upon the plausibility of our two conditions, especially the separability assumption. In fact pure separability does not obtain, although conditions can be defined in which it is approached. From (7), the rate of change of white prices depends on a term -Tkw/q(k), that equals pkW in the absence of prejudice plus a second term (l/q(k))(U&U,) that depends on k - b but is not independent of k. The impact of changes in k on this second term, however, is smaller the lower I5 We assumethroughout that given k and p(k), white households demand for q is independent of the location of the black-white border although their overall satisfaction level is lower the smaller is k-b. Furthermore, we assume that the impact of a housing code on new construction is not substantial enough to revise the result in the text.

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b, h b. FIGURE 4.

the elasticity of white housing demand and the smaller white households income elasticity of demand for x. Of course, even when separability is not approximated, it is possible for (18) to hold. Ceterisparibus, thus occurs when the difference in the slopes of the black and white bid-rent functions in the absence of prejudice is relatively large. The condition of the white tenancy must now also be considered. While in a housing market without prejudice, both races gain from code enforcement, once prejudice is introduced this result does not necessarily follow. Two equilibrium cases are possible and are illustrated in Fig. 4 as 1 and II.16 While whites benefit relative to a variable supply model in Case I, since prices are lower and ba < bl, they do not necessarily gain in Case II for, although here too whites gain from reduced prices, this may be cancelled by the fact that the black ghetto is closer. (If whites are, in fact, worse off under Case II than with a variable supply model, ~~fi(k) must intersect plR(k) at some distant k). I7 3. Abandonment. If owners of old housing can choose either to provide & or to abandon their property, then, as has been shown for the nonracist city, the equilibrium price lines under a fixed supply model could be above or below pP(k), plR(k). Blacks are therefore less likely to find a housing code superior to a free market in which landlords can vary M.
I6 If ~@(6~)>~i~(b~), then a third case is possible in which equilibrium is established for a pB(k) greater than plB(/r). In this situation blacks would be worse off and whites better off under a fixed supply model than under a variable supply formulation. I7 Under Case I density in the ghetto will be higher with a housing code model while under Case II it will be lower. In both cases maintenance levels are necessarily higher at every k although in Case I black families who would have lived in relatively new housing between ba and bi are now accommodated in older housing at k _< bl.

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VII. CONCLUSIONS The limitations of the model developed here should be emphasized. The paper deals only with equilibrium conditions and therefore does not contradict the empirical evidence indicating higher housing prices for blacks in cities where disequilibrium conditions obtain as a result of a rapid black inmigration. Moreover, the model requires several assumptions which do not necessarily hold in fact. First, the ghetto is assumedto be capable of expansion. It is not surrounded by nonresidential properties or by suburbs practicing exclusionary zoning. Second, suppliers are always willing to rent to the highest bidder and are incapable of collusive activity. Finally, the fact that many jobs are located in the suburbs far from concentrations of old housing has been ignored. Proceeding from this simplified model, the paper has developed Muths theory of racist behavior by showing that the impact of prejudice on price, quality and density dependsupon the nature of supplier response.The magnitude of black price gains from racism are smaller the higher the price elasticity of maintenance spending for older housing in ghetto and border regions, the higher the costs of demolition and new construction and the larger the externalities from abandoned or poorly maintained housing units. Nevertheless, there does remain a basic asymmetry between the impact of prejudice in our hypothetical urban housing market and discrimination in other areas, notably the job market. While blacks benefit somewhat from white racism in housing, they most certainly lose in the job market. Thus, the net impact of prejudice upon blacks in the city hypothesized by Richard Muth may be either positive or negative. REFERENCES 1. W. Alonso, Location and Land Use, Harvard University Press, Cambridge, MA
(1964). 2. M. Bailey, Note on the economics of residential zoning and urban renewal, Larzd Econ.
35, 288-W (1959). 3. B. Cohen, Another theory of residential segregation, Land Econ. 47, 314-315 (1971).

4. M. Edel, Planning, market or welfare?-Recent land use conflict in American cities, in Readings in Urban Economics (Edel and Rothenberg, Eds.), Macmillan, New York (1972). 5. R. A. Haugen and A. J. Heins, A market separation theory of rent differentials in metropolitan areas, Quart. J. Econ. 83, 660-673 (1969). 6. G. F. Ingram, J. F. Kain, and J. R. Ginn, with contributions by H. J. Brown, and S. P. Dresch, The Detroit Prototype of the N.B.E.R. Urban Simulation Model, National Bureau of Economic Research, New York (1972). 7. J. F. Kain, Effect of housing market segregation on urban development, Savings and residential&awing: 1969 confhence proceedings, U. S. Savings and Loan League. 8. J. F. Kain, The journey-to-work as a determinant of residential location, Papers of the RegionaI Science Association 9, 137-160 (1972), Reprinted in Urban Analysis, (Page and Seyfried, Eds.) Scott, Foresman. New York (1970).

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9. A. T. King and P. Mieszkowski, Racial discrimination, segregation, and the price of housing, J. Polit. Econ. 81, 590-606 (1973). 10. V. Lapham, Do Blacks Pay More for Housing ?, J. Polit. Econ. 79, 1244-1257 (1971). 11. E. S. Mills, An aggregative model of resource allocation in a metropolitan area, American Economic Review, Papers and Proceedings 57, 197-210 (1967). 12. R. Muth, Cities and Housing, University of Chicago Press, Chicago (1969). 13. R. Muth, The Demand for Non-Farm Housing, in The Demand for Durable Goods (Harberger, Ed,), University of Chicago Press, Chicago (1960). 14. M. Reid, Housing and Income, University of Chicago Press, Chicago (1962). 15. T. Schelling, Models of Segregation, Memorandum RM-6014-RC, The RAND Corporation (1969). 16. T. Schelling, Neighborhood Tipping, in Racial Discrimination in Economic Life, (Pascal, Ed.) D. C. Heath, Lexington, MA (1972). 17. E. Smolensky, S. Becker, and H. Molotch, The prisoners dilemma and ghetto expansion, Lund Econ. 44, 420 (1968).