Forschungsgruppe ORCOS
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Optimal Dynamic Management of the Population Mix

OeNB (01.2006 - 12.2009), Project leader: G. Tragler

Keywords: dynamic segregation, public policy, external effects, multiple equilibria, nonlinear optimal control


A challenging but common problem of contemporary society is to spread out marginalized populations among established middle-class communities without inducing the inhabitants of these communities to outward migration or flight. There is now considerable evidence that the overall social welfare is lower when marginalized populations are segregated in ghettos than when they are integrated in socially and economically successful mainstream communities.

However, it is also well-known that mainstream families tend to flee when faced with an influx of marginal migrants. Hence, policy makers should seek to find an optimal compromise between preserving the established population in a neighborhood and facilitating the inflow of marginalized families. This problem has received considerable attention in the policy-oriented literature. However, the dynamic tension emerging from the fact that an influx of marginalized persons in a settled community has both positive (increased social assimilation) and negative (departures of existing inhabitants) effects, has only very recently been addressed with powerful analytic methods such as optimal control.

Our recent analysis of the integration of poor people into middle-class neighborhoods has shown that the appropriate policy options can be much more sophisticated than is usually assumed in the existing literature. In particular, the policy to be adopted may crucially depend on the current state of social integration. The dependency of the optimal policy on the initial conditions appears to be a common property of many public policy models. Until now, however, it has been mostly investigated on an ad hoc basis. Within the planned research on social integration we will also develop advances in the theory of multiple equilibria, path dependence and tipping, which should be applicable to many other policy-relevant problems as well. The suggested research has therefore very concrete, practical motivations. In addition, it is directly related to one of the currently most active and promising topics in academic research, the economic analysis of group effects, social interactions and networks, in particular with respect to the design of efficient policies.