The cost of segregation in (social) networks

This paper investigates the private provision of public goods in segregated societies. While most research agrees that segregation undermines public goods provision the findings are mixed for private provision: social interactions, being strong within groups and limited across groups, may either increase or impede voluntary contributions. Surprisingly, very little light is shed in the literature on the impact of government intervention on private provision in networks. This paper, first, develops an index, called the Bonacich transfer index, for societies with general network structures of social interactions, which, roughly speaking, measures the impact of redistributive policies. Then, the paper shows that the Bonacich transfer index vanishes in large segregated societies, which suggests an “asymptotic neutrality” of government intervention. JEL classification: C72, D31, H41.