DP9953 The Price of Prejudice

Author(s): Morten Hedegaard, Jean-Robert Tyran
Publication Date: April 2014
Keyword(s): discrimination, field experiment, labor market
JEL(s): C93, J71
Programme Areas: Labour Economics, Public Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=9953

We present a new type of field experiment to investigate ethnic prejudice in the workplace. Our design allows us to study how potential discriminators respond to changes in the cost of discrimination. We find that ethnic discrimination is common but remarkably responsive to the "price of prejudice", i.e. to the opportunity cost of choosing a less productive worker on ethnic grounds. In addition, we find that the standard theory of statistical discrimination fails to explain observed choices, and that taking ethnic prejudice into account helps to predict the incidence of discrimination.