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Group Reputation and the Dynamics of Statistical Discrimination

Author

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  • Kim, Young Chul
  • Loury, Glenn

Abstract

Previous literature on statistical discrimination explained stereotypes based on the existence of multiple equilibria, in which principals have different self-confirming beliefs about different social groups (Arrow, 1973; Coate and Loury, 1993). However, the literature has not provided an account of where the principals' prior beliefs come from. Moreover, the static models dominating the literature do not offer relevant information about the dynamic paths that lead to each equilibrium. This paper develops a dynamic version of statistical discrimination in which economic players' forward-looking behaviors determine the dynamic paths to each equilibrium. Defining ``Group Reputation'' as the objective information shared by principals regarding the average characteristics of agents belonging to each group, this study identifies groups as advantaged or disadvantaged, based on their initial reputation states, and provides conditions by which a group can switch from one reputation state to another. By understanding this dynamic structure of reputation evolution, we examine the strategy that well-coordinated principals may voluntarily utilize to maximize their profits, helping the group in the reputation trap to improve its skill investment rate.

Suggested Citation

  • Kim, Young Chul & Loury, Glenn, 2009. "Group Reputation and the Dynamics of Statistical Discrimination," MPRA Paper 18765, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:18765
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    File URL: https://mpra.ub.uni-muenchen.de/18765/1/MPRA_paper_18765.pdf
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    References listed on IDEAS

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    1. Adsera, Alicia & Ray, Debraj, 1998. "History and Coordination Failure," Journal of Economic Growth, Springer, vol. 3(3), pages 267-276, September.
    2. David Card & Alexandre Mas & Jesse Rothstein, 2008. "Tipping and the Dynamics of Segregation," The Quarterly Journal of Economics, Oxford University Press, vol. 123(1), pages 177-218.
    3. O'Flaherty, Brendan & Sethi, Rajiv, 2008. "Racial stereotypes and robbery," Journal of Economic Behavior & Organization, Elsevier, vol. 68(3-4), pages 511-524, December.
    4. Shubham Chaudhuri & Rajiv Sethi, 2008. "Statistical Discrimination with Peer Effects: Can Integration Eliminate Negative Stereotypes?," Review of Economic Studies, Oxford University Press, vol. 75(2), pages 579-596.
    5. Lawrence E. Blume, 2006. "The Dynamics of Statistical Discrimination," Economic Journal, Royal Economic Society, vol. 116(515), pages 480-498, November.
    6. Roland G. Fryer Jr. & Glenn C. Loury, 2005. "Affirmative Action and Its Mythology," Journal of Economic Perspectives, American Economic Association, vol. 19(3), pages 147-162, Summer.
    7. Moro, Andrea & Norman, Peter, 2004. "A general equilibrium model of statistical discrimination," Journal of Economic Theory, Elsevier, vol. 114(1), pages 1-30, January.
    8. Paul Krugman, 1991. "History versus Expectations," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 651-667.
    9. Levin Jonathan, 2009. "The Dynamics of Collective Reputation," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 9(1), pages 1-25, August.
    10. Schwab, Stewart, 1986. "Is Statistical Discrimination Efficient?," American Economic Review, American Economic Association, vol. 76(1), pages 228-234, March.
    11. Peter Norman, 2003. "Statistical Discrimination and Efficiency," Review of Economic Studies, Oxford University Press, vol. 70(3), pages 615-627.
    12. Samuel Bowles & Glenn C. Loury & Rajiv Sethi, 2014. "Group Inequality," Journal of the European Economic Association, European Economic Association, vol. 12(1), pages 129-152, February.
    13. Roland Fryer & Glenn C. Loury & Tolga Yuret, 2003. "Color-Blind Affirmative Action," NBER Working Papers 10103, National Bureau of Economic Research, Inc.
    14. Kim, Young Chul, 2009. "Lifetime Network Externality and the Dynamics of Group Inequality," MPRA Paper 18767, University Library of Munich, Germany.
    15. Coate, Stephen & Loury, Glenn C, 1993. "Will Affirmative-Action Policies Eliminate Negative Stereotypes?," American Economic Review, American Economic Association, vol. 83(5), pages 1220-1240, December.
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    Cited by:

    1. Raymond Fisman & Daniel Paravisini & Vikrant Vig, 2017. "Cultural Proximity and Loan Outcomes," American Economic Review, American Economic Association, vol. 107(2), pages 457-492, February.
    2. Juan Camilo Cárdenas & Hugo Ñopo & Jorge Luis Castañeda, 2012. "Equidad en la Diferencia: Políticas para la Movilidad Social de Grupos de Identidad. Misión de Movilidad Social y Equidad," DOCUMENTOS CEDE 010319, UNIVERSIDAD DE LOS ANDES-CEDE.
    3. Kevin Lang & Jee-Yeon K. Lehmann, 2012. "Racial Discrimination in the Labor Market: Theory and Empirics," Journal of Economic Literature, American Economic Association, vol. 50(4), pages 959-1006, December.
    4. Kim, Young Chul, 2009. "Lifetime Network Externality and the Dynamics of Group Inequality," MPRA Paper 18767, University Library of Munich, Germany.

    More about this item

    Keywords

    Statistical Discrimination; Group Reputation; Reputation Trap; Forward-Looking Behavior;

    JEL classification:

    • H0 - Public Economics - - General
    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General
    • J71 - Labor and Demographic Economics - - Labor Discrimination - - - Hiring and Firing

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