Race, Information, and Segregation

35 Pages Posted: 30 Apr 1999

See all articles by Shelly J. Lundberg

Shelly J. Lundberg

University of California, Santa Barbara (UCSB); IZA Institute of Labor Economics; University of Bergen - Department of Economics

Richard Startz

UCSB

Date Written: December 1998

Abstract

This paper presents several related economic models that explore the relationships between imperfect information, racial income disparities, and segregation. The use of race as a signal arises here, as in models of statistical discrimination, from imperfect information about the return to transactions with particular agents. If agents are able to learn from transactions, racial signaling can emerge with only minimal assumptions about the ex ante importance of race. In a search framework, this signaling supports not simply a discriminatory equilibrium, but a pattern of racially segregated transactions, which in turn perpetuates the informational asymmetries. Minority groups necessarily suffer disproportionately from segregation, since the degree to which transactions opportunities are curtailed depends upon group size. However, in some variants of the model, endogenous segregation will be mutual, since minority agents face an adverse selection of majority agents who are willing to trade with them.

JEL Classification: J71

Suggested Citation

Lundberg, Shelly J. and Startz, Richard, Race, Information, and Segregation (December 1998). Available at SSRN: https://ssrn.com/abstract=148334 or http://dx.doi.org/10.2139/ssrn.148334

Shelly J. Lundberg

University of California, Santa Barbara (UCSB) ( email )

Santa Barbara, CA 93106
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

University of Bergen - Department of Economics ( email )

Fosswinckelsgt. 6
N-5007 Bergen, 5007
Norway

Richard Startz (Contact Author)

UCSB ( email )

Department of Economics
University of California
Santa Barbara, CA 93106-9210
United States
805-893-2895 (Phone)

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