On Discrimination with Competition between Groups

Statistical discrimination explains that two ex ante identical groups can have two different qualifications due to asymmetric information and self-fulfilling equilibria. In the typical statistical discrimination models, however, there is no interaction between groups. This paper offers a statistical discrimination model with a continuous signaling in which two groups compete for employment. We compare exclusive equilibria, in which no worker in one group makes a human capital investment, with symmetric equilibria, and show that discrimination as well as non-discrimination can be Pareto optimal under a certain environment.