A General Equilibrium Model of Statistical Discrimination

by Andrea Moro and Peter Norman.
Journal of Economic Theory 114 (1), January 2004, 1-30 : PDF
We study a general equilibrium model with endogenous human capital formation in which ex ante identical groups may be treated asymmetrically in equilibrium. The interaction between an informational externality and general equilibrium effects creates incentives for groups to specialize, and discrimination 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 be necessary to decrease the welfare of the dominant group to achieve parity.
External appendix : Figures and example mathematica notebook available upon request :
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