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Dilip Mookherjee, Debraj Ray, Stefan Napel, Aspirations, Segregation, and Occupational Choice, Journal of the European Economic Association, Volume 8, Issue 1, 1 January 2010, Pages 139–168, https://doi.org/10.1111/j.1542-4774.2010.tb00498.x
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Abstract
This paper examines the steady states of an overlapping generations economy with a given distribution of household locations over a one-dimensional interval. Parents decide whether or not to educate their children. Educational decisions are affected by location: There are local complementarities in investment incentives stemming from aspirations formation, learning spillovers, or local public goods. At the same time, economy-wide wages endogenously adjust to bring factor supplies into line with demand. The model therefore combines local social interaction with global market interaction. The paper studies steady-state configurations of skill acquisition, both with and without segregation. The model is used to compare macroeconomic and welfare properties of segregated and unsegregated steady states.