Stereotypes and Inequality: A ‘Signaling’ Theory of Identity Choice

• Main Authors: Kim, Young Chul, Loury, Glenn C
• Format: Article
• Language: English
• Published: Korea Development Institute 2012-06-01
• Series: KDI Journal of Economic Policy
• Subjects: Stereotypes(고정관념); Statistical Discrimination(통계적 차별); Identity Choice(정체성 선택); Signaling(노동시장 신호)
• Online Access: https://doi.org/10.23895/kdijep.2012.34.2.1
• ISSN: 2586-2995; 2586-4130

We develop an identity choice model within the context of a stereotyping-cum-signaling framework. The model allows us to explore implications of the fact that, when individuals can choose identity, then the distribution of abilities within distinct identity groups becomes endogenous. This is significant because, when identity is exogenous and if the ability distributions within groups are the same, then inequality of group reputations in equilibrium can only arise if there is a positive feedback between group reputation and individual human capital investment activities (Arrow, 1973; Coate and Loury, 1993). Here we show that when group membership is endogenous then the logic of individuals’ identity choices leads there to be a positive selection of higher ability individuals into the group with a better reputation. This happens because those for whom human-capital-investment is less costly are also those who stand to gain more from joining the favored group. As a result, ability distributions within distinct groups can endogenously diverge, reinforcing incentive-feedbacks. We develop the theoretical framework that can examine the positive selection and the endogenous group formation. The model implies that inequality deriving from stereotyping of endogenously constructed social groups is at least as great as the inequality that can emerge between exogenously given groups.