Segregation and the Perception of the Minority

In his seminal work, Schelling (1971) shows that even individual preferences for integration across groups may generate high levels of segregation. However, this theoretical prediction does not match the decreasing levels of segregation observed since the 1970s. We construct a general equilibrium model in which preferences depends on the number of peers and unlike individuals, but also on the benefit (or loss) they attribute to the economic and social life that a minority member brings with him, which we call their "perception of the minority". In this framework, there always exists a structure of the preferences for which integrated equilibria emerge and are stable. Even when individuals are all prejudiced against other groups, there is still a level of the perception of the minority for which integration is a stable outcome. We then propose an econometric specification in which the structural preference parameters can be identified. In the case of South Africa, our estimates of preferences provide evidence for a dynamics toward increasing integration as the effect of the perception of the minority is found positive and significant, and overcome both racism and homophily by between roughly one and four times.