Segregation and the Spatial Externalities of Inequality : A Theory of Collateral Cooperation for Public Goods in Cities

Conventional wisdom claims that racial diversity undermines public goods provision. In this paper, I show that socioeconomic diversity, instead, generates a form of collateral cooperation for public goods. I argue that socioeconomically integrated (non-segregated) cities have a higher incidence of the negative spatial externalities of inequality (e.g., crime, contamination) that spill over from impoverished localities. Such neighborhood effects, in turn, induce the middle-class' preferences for certain public goods, while decreasing the perceived relative efficacy of private solutions (e.g., private guards). Thus, socioeconomic integration -–through the spatial externalities mechanism-– enables preference convergence on the public provision of services in place of private options. To test the argument, I propose an instrument for segregation that interacts rural-to-urban predicted migration (i.e., shift-share instrument) of the poor with the destination locality's ``urban form.'' I combine this quasi-experimental strategy with neighborhood-level measures of class- and race-based segregation and an original face-to-face survey of preferences with over 4,000 households across 408 of the total 456 neighborhoods in the megacity of São Paulo, Brazil. The analysis introduces self-interest in reducing externalities as a new mechanism that drives cooperation for public goods. Using embedded mechanism vignettes, I distinguish this mechanism from alternatives mechanisms –e.g., racial tolerance, social affinity-– proposed in the literature