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Statistical Discrimination with Neighborhood Effects: Can Integration Eliminate Negative Stereotypes?

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Author Info
Shubham Chaudhuri (Columbia University)
Rajiv Sethi (Columbia University)

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Abstract

We introduce neighborhood effects in the costs of human capital acquisition into a model of statistical discrimination in labor markets. This creates a link between the level of segregation and the likelihood and extent of statistical discrimination. As long as negative stereotypes persist in the face of increasing integration, skill levels rise in the disadvantaged group and fall in the advantaged group. If integration proceeds beyond some threshold, however, there can be a qualitative change in the set of equilibria, with negative stereotypes becoming unsustainable and skill levels in both groups changing significantly. This change can work in either direction: skill levels may rise in both groups, or fall in both groups. Which of these outcomes arises depends on the population share of the disadvantaged group, and on the curvature of the relationship between neighborhood quality and the costs of human capital accumulation.

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Paper provided by EconWPA in its series Game Theory and Information with number 0312001.

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Date of creation: 04 Dec 2003
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Handle: RePEc:wpa:wuwpga:0312001

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Related research
Keywords: Statistical discrimination; Neighborhood effects; Human capital spillovers;

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Find related papers by JEL classification:
C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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  5. Moro, Andrea & Norman, Peter, 2003. "Affirmative action in a competitive economy," Journal of Public Economics, Elsevier, vol. 87(3-4), pages 567-594, March. [Downloadable!] (restricted)
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  7. Akerlof, George A, 1976. "The Economics of Caste and of the Rat Race and Other Woeful Tales," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 599-617, November. [Downloadable!] (restricted)
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  9. Benabou, Roland, 1996. "Heterogeneity, Stratification, and Growth: Macroeconomic Implications of Community Structure and School Finance," American Economic Review, American Economic Association, vol. 86(3), pages 584-609, June. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Juan Camilo Cardenas & Natalia Candelo & Alejandro Gaviria & Sandra Polania & Rajiv Sethi, 2008. "Discrimination in the Provision of Social Services to the Poor: A Field Experimental Study," RES Working Papers 3247, Inter-American Development Bank, Research Department. [Downloadable!]
    Other versions:
  2. Brendan O'Flaherty & Rajiv Sethi, 2004. "Racial stereotypes and robbery," Discussion Papers 0405-15, Columbia University, Department of Economics. [Downloadable!]
    Other versions:
  3. Samuel Bowles & Rajiv Sethi, 2006. "Social Segregation and the Dynamics of Group Inequality," Working Papers 2006-02, University of Massachusetts Amherst, Department of Economics. [Downloadable!]
  4. Maria Saez-Marti & Yves Zenou, 2005. "Cultural Transmission and Discrimination," IZA Discussion Papers 1880, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  5. Brendan O'Flaherty & Rajiv Sethi, 2004. "Robbery and Race," Game Theory and Information 0411005, EconWPA, revised 10 Jan 2005. [Downloadable!]
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