A General Equilibrium Model of Statistical Discrimination

Abstract

We consider a general equilibrium model with endogenous human capital formation in which ex ante identical groups may be treated differently in equilibrium due to informational externalities. Unlike earlier models of statistical discrimination, group inequalities may arise even if the corresponding model with a single group has a unique equilibrium. The dominant group gains from discrimination, rationalizing why a majority may be reluctant to eliminate discrimination. The model is also consistent with "reverse discrimination" as a remedy against discrimination since it may require to decrease the welfare of the dominant group to achieve parity.

Keywords: Statistical Discrimination, General equilibrium, Asymmetric Information, Human Capital

JEL Classification: D58, D62, D82, J41, J71