Spontaneous Discrimination

34 Pages Posted: 16 May 2012

See all articles by Marcin Peski

Marcin Peski

University of Texas at Austin

Balázs Szentes

University of Chicago - Department of Economics

Date Written: May 7, 2012

Abstract

This paper considers a dynamic economy in which agents are repeatedly matched with one another and decide whether to enter into profitable partnerships. Each agent has a physical colour and a social colour. The social colour of an agent acts as a signal about the physical colour of agents in his partnership history. Before an agent makes a decision, he observes his match's physical and social colours. Neither the physical colour nor the social colour is payoff-relevant. We identify environments where, in some equilibria, agents condition their decisions on the physical and social colours of their potential partners. That is, they discriminate. The main result of the paper is that, in these aforementioned environments, every stable equilibrium must involve discrimination. In particular, the colour-blind equilibrium is unstable.

Keywords: racial discrimination, stable equilibria

JEL Classification: D83, J15, J71

Suggested Citation

Peski, Marcin and Szentes, Balázs, Spontaneous Discrimination (May 7, 2012). Becker Friedman Institute for Research in Economics Working Paper No. 2012-005. Available at SSRN: https://ssrn.com/abstract=2061304 or http://dx.doi.org/10.2139/ssrn.2061304

Marcin Peski

University of Texas at Austin ( email )

2317 Speedway
Austin, TX 78712
United States

Balázs Szentes (Contact Author)

University of Chicago - Department of Economics ( email )

1126 East 59th Street
Chicago, IL 60637
United States
(773) 702-9127 (Phone)

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