A Theory of Strategic Discrimination

This project investigates how individuals account for other’s group composition preferences when deciding whom to include in a group or network, in the absence of any personal taste or monetary benefits associated with the inclusion of a particular person; such as when landlords discriminate against black clients in response to current and future prejudiced white tenants. We study three different potential causes why individuals live up to the group composition preferences of their group members. First, individuals have altruistic feelings towards current group members and enhances current members’ utility by selecting their preferred candidates. Second, they anticipate that other group members’ cooperativeness dependent upon who has been selected and adapt their selection decision accordingly. Third, they want to trigger reciprocal behavior by signaling that they care for group composition preferences of others. We test our theory in a public good game in which we allow for endogenous team formation. Thereby, we show that discriminatory behavior in embedded context may appear even if the individual has no taste for either candidate or any reason to discriminate statistically, for both altruistic and strategic reasons and thereby identify a new major source for structural discrimination.