Theories of Discrimination and Economic Policy

Abstract This chapter focuses asks how we can explain differences in productivities among groups, where the groups are, in some sense, “innately” the same. We show how groups that are intrinsically the same, when confronted with a discriminatory equilibrium, make different decisions concerning investments in productivity. These give rise, in a rational expectations equilibrium to differences in wages received by those with the same observable characteristics but belonging to different identifiable groups. Thus, the differences in productivity are endogenous and a result themselves of discrimination. These differences can be sustained over time. We present alternative models in which this can occur. The…