Collective Reputation And The Dynamics Of Statistical Discrimination

Economists have developed theoretical models identifying self†fulfilling expectations as an important source of statistical discrimination practices. The static models dominating the literature, however, may leave the false impression that a bad equilibrium is as fragile as a “bubble†and can burst at any moment when expectations flip. By developing a dynamic version of the model, we clarify the limits of expectations†related fragility. Even if group members can coordinate their expectations about future employer behavior, a group with a poor initial collective reputation may still be unable to recover its reputation, implying that the once†developed discriminatory outcomes can be long†standing.