On Why Affirmative Action May Never End and Why it Should

Philippe Jehiel (1, 2) , Matthew V Leduc (1, 2)

1 PSE - Paris School of Economics
2 PJSE - Paris Jourdan Sciences Economiques

Successive governments must decide whether to implement an affirmative action policy aimed at improving the performance distribution of the next generation of a targeted group. Workers receive wages corresponding to their expected performance, suffer a feeling of injustice when getting less than their performance, and employers do not (perfectly) observe whether workers benefited from affirmative action. We find that welfare-maximizing governments choose to implement affirmative action perpetually, despite the resulting feeling of injustice that eventually dominates the purported beneficial effect on the performance of the targeted group. This is in contrast with the first-best that requires affirmative action to be temporary.

Keywords: Affirmative Action; General Equilibrium; Loss Aversion; Prospect Theory; Moral Hazard; Game Theory

Domains: Humanities and Social Sciences; Economics and Finance

Philippe Jehiel, Matthew V Leduc. On Why Affirmative Action May Never End and Why it Should. 2021. ⟨halshs-03359602v1⟩