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Blockbusting: brokers and the dynamics of segregation

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This paper shows that information plays a key role in the coordination of white households’ forward-looking expectations to leave an area in response to the entry of minority households. First, from the 1940s to the 1970s, real estate brokers earned substantial commission fees during white flight to the suburbs. Real estate agents, who have asymmetric information on potential buyers, have an incentive to strategically disclose information on potential minority buyers, to trigger white flight and increase profits. The prohibition of this type of disclosure in the 1968 Civil Rights Act is shown to increase white welfare and prevent the entry of black households. Second, households’ behavior – whether to stay or leave – provides other households with information about potential buyers. Baltimore and Philadelphia prohibited “Sold” signs to stem white flight.Prohibiting “Sold” signs benefits whites with strong racial preferences and hurts whites with weak racial preferences.

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