Ethnic residential segregation can arise from voluntary or imposed clustering of some ethnicities in specific urban areas. However, up to now it has been difficult to untangle the real causes underlying the segregation phenomena. In particular, voluntary segregation preferences could not be revealed from the observed location choices given the existence of constraints in the real housing market. This study aims at analysing the voluntary segregation drivers through a stated preferences experiment of neighbourhood choice. This method obviates the choice-constraint issue by allowing a hypothetically free choice of alternative urban locations. The results suggest that ethnic preferences exist, positive for co-national neighbours and negative for other foreign groups. However, such preferences do not constitute a major location choice driver given relatively modest willingness-to-pay for ethnic neighbourhood characteristics. Certain heterogeneity in preferences for higher concentration of own co-nationals is captured for households of different origins and educational attainment.

Theoretical models of ethnic residential segregation indicate asymmetries in preferences as the key driver of ethnic segregation dynamics. This study uses a pivoted choice experiment to empirically analyse the asymmetric preference structures for ethnic composition of neighbourhoods. We assume that the utilities of various alternative residential locations are dependent on the experienced levels of co-ethnics or ethnic minorities in the current neighbourhood of residence, where the increases in current ethnic concentrations could be evaluated differently than decreases. Results from a discrete choice model estimated on data from Swiss city of Lugano confirm the existence of asymmetries, showing that individuals tend to be averse to decreases in the share of their co-nationals, while being indifferent to any increases.JEL classification: D110, D120, R200, R210, R230

The nature of ethnic residential clustering involves diverse population segments which through their location decisions influence the spatial patterns of ethnic settlements. While residential location is in part determined by outside constraints, choice plays a role too, making the study of preferences an important research topic. Along with differences in socioeconomic characteristics, literature often emphasises the role of unobserved (behavioural) elements in the formation of preferences for ethnic neighbourhood composition. This paper tests the potential of latent class choice models to examine both observed and unobserved heterogeneity in residential choices across ethnic groups. The empirical example is estimated on stated preferences data from Lugano, Switzerland. The results indicate different ethnic attributes as key choice drivers for households belonging to three latent classes, where the origin of households is the best predictor of class membership. Swiss citizens are mainly concerned about high shares of foreigners, advantaged foreigners favour their co-nationals, while disadvantaged foreigners hold both of such preferences.