Reversing Induced Discrimination: Mechanism Design and Experiment

Abstract

Research has shown that the higher penalties for discrimination under the Civil Rights Act of 1991 appear to have induced hiring discrimination. This occurs because employers use the proxy of protected group membership to identify high litigation risk employees in the absence of reliable indicators of true risk. This paper develops and tests a mechanism to reverse the induced discrimination. The mechanism creates a reliable signal of litigation risk to replace the imperfect proxy of protected group membership. This allows employers to reduce litigation risk without discriminating against protected groups. Experimental results indicate that the mechanism behaves as theory predicts. Accordingly, use of the mechanism could restore race/gender-blind hiring.