Statistical and Indirect Discrimination: Revisiting the Incentive Problem

A widely held perception among managers at Japanese firms is that “human capitalHuman capital investment in women will be wasted because women quit when marrying or when having children” and that “women are less productive and less ambitious than men.” On the surface, these statements might appear to be the case. However, this problem is not the fault of female workers but a consequence of Japanese firms’ choices that create a self-fulfilling prophecySelf-fulfilling prophecy —for which this chapter presents the rationale. More specifically, the analysis relies on the game-theoretic model of Coate and LouryCoate and Loury (CL) and provides two new solutions for breaking the self-fulfilling prophecySelf-fulfilling prophecy equilibrium not considered under the CL theory. Furthermore, the analysis modifies the CL theory—a statistical discriminationStatistical discrimination theory that integrates incentive problemsIncentive problem —by formally theorizing incentive problems pertaining to indirect discrimination and presents new theoretical findings that are consistent with empirical facts regarding the gender disparity in the attainment of managerial and professional positions in Japan. Moreover, these mathematical theoretical models on discrimination clarify the importance of incentive problemsIncentive problem in the promotion of gender equality in economic activities.