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Opportunistic Discrimination

Author

Listed:
  • Rick Harbaugh

    (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)

  • Ted To

    (Bureau of Labor Statisics)

Abstract

When can you cheat some people without damaging your reputation among others? In a trust game between a firm and a series of individuals from two groups of different sizes, the firm has more incentive to cheat minority individuals because trade with the minority is less frequent and the long-term benefits of a reputation for fairness toward the minority are correspondingly smaller. If the majority is sufficiently large it gains nothing from a solidarity strategy of punishing opportunism against the minority, so the firm can continue doing business with the majority even if it cheats the minority. When some firms have a preference-based bias against the minority, the interaction with reputation effects gives all firms a stronger incentive to cheat the minority, and discrimination is the unique equilibrium for firms of intermediate patience.

Suggested Citation

  • Rick Harbaugh & Ted To, 2008. "Opportunistic Discrimination," Working Papers 2008-07, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  • Handle: RePEc:iuk:wpaper:2008-07
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    Cited by:

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    3. Stijn Baert & Ann-Sophie De Pauw & Nick Deschacht, 2016. "Do Employer Preferences Contribute to Sticky Floors?," ILR Review, Cornell University, ILR School, vol. 69(3), pages 714-736, May.

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    More about this item

    Keywords

    discrimination; trust; social capital; opportunism; reputation spillover;
    All these keywords.

    JEL classification:

    • J71 - Labor and Demographic Economics - - Labor Discrimination - - - Hiring and Firing
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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