Information and Racial Exclusion

37 Pages Posted: 9 Nov 2004

See all articles by Shelly J. Lundberg

Shelly J. Lundberg

University of California, Santa Barbara (UCSB); IZA Institute of Labor Economics; University of Bergen - Department of Economics

Richard Startz


Date Written: November 2004


This paper presents several economic models that explore the relationships between imperfect information, racial income disparities, and segregation. The use of race as a signal arises here, as in models of statistical discrimination, from imperfect information about the return to transactions with particular agents. In a search framework, signaling supports not simply a discriminatory equilibrium, but a pattern of racially segregated transactions, which in turn perpetuates the informational asymmetries. Minority groups necessarily suffer disproportionately from segregation, since the degree to which transactions opportunities are curtailed depends upon group size, as well as the informational "distance" between racial groups. However, in some variants of the model, minority agents will self-segregate since they face an adverse selection of majority agents who are willing to trade with them. We also show that, if agents are able to learn from transactions, racial signaling can emerge with only minimal assumptions about the ex ante importance of race.

Keywords: race, segregation, discrimination, imperfect information, search

JEL Classification: J7, D83

Suggested Citation

Lundberg, Shelly J. and Startz, Richard, Information and Racial Exclusion (November 2004). Available at SSRN: or

Shelly J. Lundberg

University of California, Santa Barbara (UCSB) ( email )

Santa Barbara, CA 93106
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072

University of Bergen - Department of Economics ( email )

Fosswinckelsgt. 6
N-5007 Bergen, 5007

Richard Startz (Contact Author)

UCSB ( email )

Department of Economics
University of California
Santa Barbara, CA 93106-9210
United States
805-893-2895 (Phone)

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