Government-Mandated Discriminatory Policies

SSRI Working Paper No. 2001-12

33 Pages Posted: 30 Jul 2001

See all articles by Peter Norman

Peter Norman

University of British Columbia - Department of Economics

Hanming Fang

University of Pennsylvania - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: November 22, 2004

Abstract

This paper provides a simple explanation for why some minority groups are economically successful, despite being subject to government-mandated discriminatory policies. We study an economy with private and public sectors in which workers invest in imperfectly observable skills that are important to the private sector but not to the public sector. A law allows native majority workers to be employed in the public sector with positive probability while excluding the minority from it. We show that even when the public sector offers the highest wage rate, it is still possible that the discriminated group is, on average, economically more successful. The reason is that the preferential policy lowers the majority's incentive to invest in imperfectly observable skills by exacerbating the informational free riding problem in the private sector labor market.

Keywords: Discrimination, successful minorities, free-riding, human capital

JEL Classification: D62, D63, H23, J71, J78

Suggested Citation

Norman, Peter and Fang, Hanming, Government-Mandated Discriminatory Policies (November 22, 2004). SSRI Working Paper No. 2001-12, Available at SSRN: https://ssrn.com/abstract=278267 or http://dx.doi.org/10.2139/ssrn.278267

Peter Norman (Contact Author)

University of British Columbia - Department of Economics ( email )

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Vancouver, British Columbia BC V6T 1Z2
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(604) 822-2839 (Phone)

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

Hanming Fang

University of Pennsylvania - Department of Economics ( email )

Ronald O. Perelman Center for Political Science
133 South 36th Street
Philadelphia, PA 19104-6297
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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