This paper shows that, under constant returns to scale and free entry, customer discrimination, unlike employer or employee discrimination, can cause long-run wage differentials. The general equilibrium impact of affirmative action policies on wages, productivity, and unemployment is contrasted under these types of discrimination. The empirical literature on affirmative action is surveyed in light of these models and some support is found for models of employer prejudice. Finally, by changing the composition of output, affirmative action policies raise the probability of a nondiscriminatory general equilibrium outcome under customer prejudice. Copyright 1991 by Oxford University Press.
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Article provided by Oxford University Press in its journal Economic Inquiry.
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