COLLECTIVE REPUTATION AND THE DYNAMICS OF STATISTICAL DISCRIMINATION

Young†Chul Kim and Glenn C. Loury

International Economic Review, 2018, vol. 59, issue 1, 3-18

Abstract: Economists have developed theoretical models identifying self†fulfilling expectations as an important source of statistical discrimination practices. The static models dominating the literature, 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. By developing a dynamic version of the model, we clarify the limits of expectations†related fragility. Even if group members can coordinate their expectations about future employer behavior, a group with a poor initial collective reputation may still be unable to recover its reputation, implying that the once†developed discriminatory outcomes can be long†standing.

Date: 2018
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