Statistical Discrimination and Intergenerational Income Mobility

This paper develops a dynamic model of statistical discrimination that accounts for intergenerational income mobility. It is shown that when income is transmitted across generations through parental investments in the human capital of children, statistical discrimination can lead racial groups with low endowments of human capital to become trapped in inferior stationary equilibria. This result is surprising since it can occur when there is a unique equilibrium for each group in each generation and even though the distribution of human capital is allowed to evolve over time. JEL Classifications: J24, J71, J62, J78 ∗I would like to thank John Kennan, Derek Neal, Peter Norman, Joel Watson, Mark Machina, James Andreoni and Larry Samuelson for their helpful comments and suggestions.

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