It has been well documented that segregation across schools — denying access to resources, inferior educational production functions, and so on — exacerbates racial differences in achievement. Using an individual measure of social connections within schools, we have shown that this form of segregation — Asian kids sitting together in the cafeteria — has a substantively unimportant relationship with academic achievement or social behavior in school or later in life. There are important caveats to our analysis: (a) our estimates of the relationship between within - school segregation and outcomes are not causal; and (b) friendships may not be the only relevant cross-race social interaction that occurs within a school.

We propose a pseudo-market solution to resource allocation problems subject to constraints. Our treatment of constraints is general: including bihierarchical constraints due to considerations of diversity in school choice, or scheduling in course allocation; and other forms of constraints needed to model, for example, the market for roommates, combinatorial assignment problems, and knapsack constraints. Constraints give rise to pecuniary externalities, which are internalized via prices. Agents pay to the extent that their purchases affect the value the of relevant constraints at equilibrium prices. The result is a constrained-efficient market-equilibrium outcome. The outcome is fair to the extent that constraints treat agents symmetrically.

We introduce a measure of the severity of violations of the revealed preference axioms, the money pump index (MPI). The MPI is the amount of money one can extract from a consumer who violates the axioms. It is also a statistical test for the hypothesis that a consumer is rational when behavior is observed with error. We present an application using a panel data set of food expenditures. The data exhibit many violations of the axioms. Mostly, the MPI for these violations is small. The MPI indicates that the hypothesis of consumer rationality cannot be rejected.