The role of statistical and taste discrimination in racial disparities

The theoretical literature on discrimination has proposed two main reasons why differential outcomes can arise for observationally equivalent individuals of different races. Taste-based theories postulate that differences in outcomes can develop if economic agents have a distaste or prejudice towards a particular racial group. On the other hand, statistical discrimination models attribute these outcomes to decision-making evaluators having incomplete information about the individuals under consideration. If evaluators believe that an individual's unobservable skill level is correlated with their racial background, they will have an economic incentive to take an individual's racial group into account when assessing their skill level.; Although there is an extensive empirical literature studying discrimination, most studies have focused on quantifying how much of the outcome differentials between racial groups can be attributed to discriminatory behavior. Very few studies have attempted to empirically determine whether these practices have arisen from taste or statistical discrimination. This is an important distinction because the effectiveness of policies to reduce discriminatory behavior depends upon the type of discrimination that is present. My dissertation provides empirical evidence on why discrimination arises by distinguishing between these two theories. The first chapter investigates whether people statistically discriminate when evaluating the skill level of others in the environment of the television game show Street Smarts. The second chapter develops an empirical test that determines whether racial differences in motor vehicle searches are due to racial prejudice on the part of police troopers. The third chapter evaluates whether taste discrimination on the part of customers might be responsible for the wage differential between black and white professional basketball players.