Scandinavian Working Papers in Economics

Research Papers in Economics,
Stockholm University, Department of Economics

No 2011:3: Cultural Transmission, Discrimination and Peer Effects

Maria Sáez-Martí () and Yves Zenou ()
Additional contact information
Maria Sáez-Martí: University of Zurich, Postal: Institute for Empirical Research in Economics, University of Zurich
Yves Zenou: Department of Economics, Stockholm University and Research Institute of Industrial Economics, Postal: Department of Economics , Stockholm University, S-106 91 Stockholm, Sweden

Abstract: Workers can have good or bad work habits. These traits are transmitted from one generation to the next through a learning and imitation process which depends on parents’ investment on the trait and the social environment where children live. We show that, if a high enough proportion of employers have taste-based prejudices against minority workers, their prejudices are always self-fulfilled in steady state. Affirmative Action improves the welfare of minorities whereas integration is beneficial to minority workers but detrimental to workers from the majority group. If Affirmative Action quotas are high enough or integration is strong enough, employers’ negative stereotypes cannot be sustained in steady-state.

Keywords: Ghetto culture; overlapping generations; rational expectations; multiple equilibria; peer effects

JEL-codes: J15; J71

30 pages, January 24, 2011

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