Towards a Theory of Race in Economics

Abstract

This dissertation project focuses on how prejudiced beliefs and discriminatory behaviour can arise and persist as the product of incentives that individuals face as stable features of social environments, comprising three substantive chapters on the behavioural economics of race. ‘Exploitation Through Racialization’ addresses the emergence of racial categories during the Transatlantic Slave Trade. Economic elites faced a persistent threat of revolt from the more numerous labouring class; a threat which is most dangerous when workers are united. However, by extending promises that individuals carrying certain physical traits are protected from harsher exploitation, the elite can split workers along colour lines and extract greater surplus. Thus, elites deliberately racialize slavery, creating new social meaning to initially meaningless physical colour. I demonstrate how this strategy of racialization explains many stylized facts and compare racialized identities to ethnic and caste divisions in other societies. ‘Stereotypes and Strategic Discrimination’ studies racial conceptualization and stereotyping. Once individuals have access to racial categories as a cognitive frame, it becomes possible to attach beliefs about group traits to these categories. I show how these stereotypes arise to support a process of strategic discrimination, where one group benefits at the others’ expense. In environments of congestion, negative stereotypes create crowding out of minority groups, whereas in environments of public goods, positive stereotypes lead to free riding. Furthermore, these stereotypes can arise despite the absence of intrinsic differences between the groups and can persist after the competitive incentives subside unless there are clear incentives for agents to correct their beliefs. Finally, ‘Legitimizing Myths’ focuses on the ideological content of beliefs about race. As shown in the prior chapters, racial prejudices and discrimination create inequality between racial groups, which may conflict with egalitarian norms. However, ideologies which explain this inequality as resulting from differences in merit can legitimize racial disparities, reducing the demand for a policy response. I show that a process of ideological contagion can lead both members of advantaged and disadvantaged groups to adopt these beliefs, although only advantaged agents benefit materially from this ideological regime.