The Dynamics of Statistical Discrimination

Lawrence Blume

Economic Journal, 2006, vol. 116, issue 515, F480-F498

Abstract: This article demonstrates how learning dynamics select among equilibria in a statistical discrimination model of employment. The static market model exhibits multiple equilibria. The belief revision dynamics generate a Markov market process which, in the long run, is mostly near one and only one of the static equilibria, regardless of initial conditions. Usually policy effects appear in comparative statics, where the equilibrium set moves with different policies. But here policy is also seen to effect which equilibrium is selected even when it has no comparative statics effect at all. Copyright 2006 The Author(s). Journal compilation Royal Economic Society 2006.

Date: 2006
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