Decentralized Affirmative Action Policies: Some Remarks on their Transparency and Persistence

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

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

Successive decentralized policy makers must decide whether to implement an affirmative action policy aimed at improving the performance distribution of future generations of a targeted group. Employers do not observe district by district whether workers benefited from affirmative action, but take into account that possibility when deciding on a wage. Workers thus receive wages corresponding to their expected performance and suffer a feeling of injustice when getting less than their actual performance. We find that welfare-maximizing policy makers choose to implement affirmative action perpetually, despite the resulting feeling of injustice that eventually dominates the anticipated benefits to the targeted group’s performance. This contrasts 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. Decentralized Affirmative Action Policies: Some Remarks on their Transparency and Persistence. 2023. ⟨halshs-03359602v2⟩