The aim of this paper is to show that both location and stereotype racial beliefs matter for explaining the high criminality rate among blacks in cities. In our model, blacks and whites are identical in all respects. However, if, for no economic but for extrinsic reasons, every-body (including blacks) believes that blacks are more criminals than whites, then we show that blacks (for rational reasons) become more criminals than whites, earn lower wages and reside in ghettos located far away from legal activities. There is a vicious circle in which blacks cannot escape because both location and labor market outcomes re-inforce each other to imply high crime rates among blacks living in cities. In this context, we show that a transportation policy that sub-sidizes the ‘access’ to legal activities for blacks can lead to a sharp decrease in their crime rate.
