Opportunistic Discrimination

33 Pages Posted: 21 Oct 2009 Last revised: 15 Jun 2020

See all articles by Rick Harbaugh

Rick Harbaugh

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy; Indiana University - Department of Economics

Ted To

Bureau of Labor Statistics

Date Written: November 15, 2013

Abstract

When can you cheat some people without damaging your reputation among others? In a trust game between a firm and a series of individuals from two groups of different sizes, the firm has more incentive to cheat minority individuals because trade with the minority is less frequent and the long-term benefits of a reputation for fairness toward the minority are correspondingly smaller. If the majority is sufficiently large it gains nothing from a solidarity strategy of punishing opportunism against the minority, so the firm can continue doing business with the majority even if it cheats the minority. When some firms have a preference-based bias against the minority, the interaction with reputation effects gives all firms a stronger incentive to cheat the minority, and discrimination is the unique equilibrium for firms of intermediate patience.

Keywords: discrimination, trust, social capital, opportunism, reputation spillover

JEL Classification: J71, J24, D63, L14

Suggested Citation

Harbaugh, Rick and To, Ted, Opportunistic Discrimination (November 15, 2013). Forthcoming, European Economic Review, Available at SSRN: https://ssrn.com/abstract=1316384 or http://dx.doi.org/10.2139/ssrn.1316384

Rick Harbaugh (Contact Author)

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy ( email )

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HOME PAGE: http://www.bus.indiana.edu/riharbau/

Indiana University - Department of Economics ( email )

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