Racial Beliefs , Location and the Causes of Crime.

The aim of this paper is to show that both location and race matter for explaining the high criminality rate in cities. In our model, blacks and whites are identical in all respects. However, if, for no economic but for extrinsic reasons, everybody (including blacks) believes that blacks are more criminals than whites, then we show that blacks will (for rational reasons) become on average more criminals than whites, will earn lower wages and will reside in ghettos located far away from legal activities. There is a vicious self-fulfilling circle in which blacks cannot escape because both location and labor market outcomes reinforce each other to imply high crime rates among blacks living in cities.