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Title: Discrimination Without Taste - How Discrimination Can Spillover and Persist

Citation Type: Miscellaneous

Publication Year: 2012

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Abstract: Minorities in many countries have been found to have lower participation rates in self-employment. In this paper we introduce beliefs as a channel of persistent discrimination in self-employment despite perfect observability of individual ability. In the theoretical model individuals can become workers or entrepreneurs, where entrepreneurs require the establishment of productive relations. An exogenous shock causes a temporary taste for discriminationamongst few principals against a certain group of individuals. The resulting discrimination negatively affects others through strategic complementarities in productive relations an individual requires to setup an enterprise. Discrimination precipitates across the economy through coordination failures driven by beliefs conditioned on observed discrimination. As a result the discriminated group might persistently have lower participation rates and payoff s from self-employment, even after no more taste for discrimination exists in society. We complement ourtheoretical model with an empirical exercise, indicating that beliefs about discrimination can lead to lower self-employment rates among blacks in the US, and taste for discrimination is not a signifi cant predictor.

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Authors: Ramachandran, Rajesh; Rauh, Christopher

Publisher: Universitat Autonoma de Barcelona

Data Collections: IPUMS USA

Topics: Labor Force and Occupational Structure, Other, Race and Ethnicity

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