Don't Demotivate, Discriminate
Tinbergen Institute Discussion Paper 14-017/VII
27 Pages Posted: 2 Feb 2014
Date Written: December 20, 2013
This paper offers a new theory of discrimination in the workplace. We consider a manager who has to assign two tasks to two employees. The manager has superior information about the employees' abilities. We show that besides an equilibrium where the manager does not discriminate, equilibria exist where the manager discriminates in favor of the employee whom the employees expect to be favored. The manager, who has no taste for discrimination, discriminates in order to avoid demotivating the 'favorite'. We show that the non-discriminatory equilibrium is unstable. Yet the manager would prefer to commit not to discriminate.
Keywords: discrimination, confidence management, Bayesian games
JEL Classification: D82, J71, M51, M54
Suggested Citation: Suggested Citation