A Note on Mutually Beneficial Exchange and Discrimination

Abstract

We use Hammond and Axelrod’s (2006) agent-based model of ethnocentrism to show how people’s willingness to cooperate with outsiders is affected by mutually beneficial exchange. In environments where one person gains at the expense of others (‘charity economies’), we find discrimination to be a dominant behavior. However, non-discrimination becomes the dominant behavior when an environment contains productive investment and mutually beneficial exchange (‘investment economies’). These results point to market-improving policy prescriptions to reduce racial/ethnic tension and the conflict that arise from it.

Keywords: discrimination, ethnocentrism, agent-based modeling, trade

JEL Classification: A13, J71, D74, D90