The political economy of a racist housing market

While much empirical research indicates that blacks pay higher prices than whites for housing, models that generate this result have not been given a convincing theoretical structure. To remedy this deficiency, the paper develops two different models in which racial market segmentation is possible. The first considers a cartel controlling a white neighborhood threatened by black entry; the second considers the effort of a suburban government to exclude blacks. After developing these models, we contrast the conditions under which private collusion and public coercion generate exclusionary policies that restrict the supply of housing to minority groups.