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Group Reputation and the Dynamics of Statistical Discrimination

  • Kim, Young Chul
  • Loury, Glenn

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.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 18765.

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Date of creation: 01 May 2009
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Handle: RePEc:pra:mprapa:18765
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  1. David Card & Alexandre Mas & Jesse Rothstein, 2007. "Tipping and the Dynamics of Segregation," NBER Working Papers 13052, National Bureau of Economic Research, Inc.
  2. Peter Norman, 2003. "Statistical Discrimination and Efficiency," Review of Economic Studies, Wiley Blackwell, vol. 70(3), pages 615-627, 07.
  3. Jonathan Levin, 2009. "The Dynamics of Collective Reputation," Discussion Papers 08-024, Stanford Institute for Economic Policy Research.
  4. 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.
  5. Kim, Young Chul, 2009. "Lifetime Network Externality and the Dynamics of Group Inequality," MPRA Paper 18767, University Library of Munich, Germany.
  6. Schwab, Stewart, 1986. "Is Statistical Discrimination Efficient?," American Economic Review, American Economic Association, vol. 76(1), pages 228-34, March.
  7. 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.
  8. Lawrence E. Blume, 2006. "The Dynamics of Statistical Discrimination," Economic Journal, Royal Economic Society, vol. 116(515), pages F480-F498, November.
  9. Moro,A. & Norman,P., 2001. "A general equilibrium model of statistical discrimination," Working papers 4, Wisconsin Madison - Social Systems.
  10. 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, 02.
  11. Brendan O'Flaherty & Rajiv Sethi, 2004. "Racial stereotypes and robbery," Discussion Papers 0405-15, Columbia University, Department of Economics.
  12. Roland G. Freyer, Jr. & Glenn C. Loury & Tolga Yuret, 2003. "Color Blind Affirmative Action," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-131, Boston University - Department of Economics.
  13. Coate, S. & Loury, G.C., 1992. "Will Affirmative Action Policies Eliminate Negative Stereotypes?," Papers 3, Boston University - Department of Economics.
  14. Adsera, Alicia & Ray, Debraj, 1998. " History and Coordination Failure," Journal of Economic Growth, Springer, vol. 3(3), pages 267-76, September.
  15. Krugman, Paul, 1991. "History versus Expectations," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 651-67, May.
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