Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/95128
Authors: 
Fang, Hanming
Norman, Peter
Year of Publication: 
2001
Series/Report no.: 
IUI Working Paper 562
Abstract: 
This paper provides a simple explanation for why some minority groups are economically successful, despite being subject to government-mandated discriminatory policies. We study an economy with private and public sectors in which workers invest in imperfectly observable skills that are important to the private sector but not to the public sector. A law allows native majority workers to be employed in the public sector with positive probability while excluding the minority from it. We show that even when the public sector offers the highest wage rate, it is still possible that the discriminated group is, on average, economically more successful. The reason is that the preferential policy lowers the majority's incentive to invest in imperfectly observable skills by exacerbating the informational free riding problem in the private sector labor market
Subjects: 
Discrimination
Informational Free Riding
Income Distribution
JEL: 
D31
J45
J71
Document Type: 
Working Paper

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