Statistical Discrimination and Efficiency

SSRI Working paper No. 9916

25 Pages Posted: 16 Nov 2000

See all articles by Peter Norman

Peter Norman

University of British Columbia - Department of Economics

Date Written: June 7, 2000

Abstract

This paper addresses a fundamental, yet unresolved, question: is statistical discrimination a market failure? I consider the problem for a utilitarian social planner who operates in an environment with imperfectly observable human capital investments. It is found that the informational problem that makes equilibrium discrimination between identical groups possible also creates efficiency gains from discrimination in terms of reduced "mismatch" between workers and jobs. Whether the solution to the planning problem involves discrimination depends on the trade-off between the informational gains of specialization and the losses in terms of increased investment costs.

JEL Classification: D61, D62, D82, J71, J78

Suggested Citation

Norman, Peter, Statistical Discrimination and Efficiency (June 7, 2000). SSRI Working paper No. 9916, Available at SSRN: https://ssrn.com/abstract=249191 or http://dx.doi.org/10.2139/ssrn.249191

Peter Norman (Contact Author)

University of British Columbia - Department of Economics ( email )

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(604) 822-2839 (Phone)

HOME PAGE: http://faculty.arts.ubc.ca/pnorman/

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