Spontaneous discrimination with endogenous information disclosure

Abstract

I introduce endogenous information disclosure into a model of “spontaneous discrimination” à la Peski and Szentes (2013). Individuals in a finite population repeatedly decide whether to engage in profitable interactions with a randomly assigned or chosen partner. Each individual has a fixed physical and a dynamic social color. Social color conveys information about the colors of past partners—but only if that information is disclosed by the decision maker or a random observer. I characterize conditions under which endogenous disclosure supports inefficient equilibria where individuals discriminate by conditioning interactions on the (payoff-irrelevant) colors of potential partners. The analysis shows how competition for being selected as partner interacts with discriminatory norms to create strict incentives for information disclosure, thereby sustaining discrimination that would otherwise break down.