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.