Subtle Discrimination

Title: Subtle Discrimination (with Elena S. Pikulina)

Abstract:We propose a theory of subtle discrimination, defined as biased acts that cannot be
objectively ascertained as discriminatory. We present a model in which candidates
compete for a promotion. When choosing among equally qualified candidates, the
principal subtly discriminates by breaking ties in favor of candidates from a particular
group. Subtle discrimination matters because it affects decisions to invest in human
capital. The model predicts that discriminated agents perform better in low-stakes careers
while favored agents perform better in high-stakes careers. In equilibrium, firms
are polarized: high-productivity firms strive to be “progressive” and have diverse
top management teams, while low-productivity firms prefer to be “conservative” and
have little diversity at the top.