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Collective Reputation and the Dynamics of Statistical Discrimination

Author

Listed:
  • Kim, Young-Chul
  • Loury, Glenn

Abstract

Economists have developed theoretical models identifying self-fulfilling expectations as an important source of statistical discrimination in labor markets (Arrow, 1973). The static models dominating the literature of statistical discrimination, however, may leave the false impression that a bad equilibrium is as fragile as a "bubble" and can burst at any moment when expectations flip. Such models thus understate the adversity that disadvantaged groups face in seeking to escape bad equilibria. By developing a dynamic version of a statistical discrimination model based on Coate and Loury's (1993) original setup, we clarify the limits of expectations-related fragility. We show that when a group is strongly affected by negative reputational externalities, the group cannot escape a low skill investment trap, regardless of how expectations are formed. By examining the evolution of stereotypes in this way, we also provide new insights into egalitarian policies.

Suggested Citation

  • Kim, Young-Chul & Loury, Glenn, 2012. "Collective Reputation and the Dynamics of Statistical Discrimination," MPRA Paper 54950, University Library of Munich, Germany, revised 31 Mar 2014.
    • Handle: RePEc:pra:mprapa:54950
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    File URL: https://mpra.ub.uni-muenchen.de/54950/1/MPRA_paper_54950.pdf
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    References listed on IDEAS

    as
    1. 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.
    2. Paul Krugman, 1991. "History versus Expectations," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 651-667.
    3. 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.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Lily Hu & Yiling Chen, 2017. "A Short-term Intervention for Long-term Fairness in the Labor Market," Papers 1712.00064, arXiv.org, revised Feb 2018.

    More about this item

    Keywords

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

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • J15 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Minorities, Races, Indigenous Peoples, and Immigrants; Non-labor Discrimination
    • J7 - Labor and Demographic Economics - - Labor Discrimination

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