Discrimination as Focal Point: Markets and Group Identity

This paper presents a theory of discrimination for markets in which there are complementarities between different tasks. It is shown that, in such a setting, even when groups are a priori identical, employers will end up discriminating against certain groups. Group discrimination serves the purpose of creating a focal point in a market game. In this model, the free market, far from curbing discrimination, nurtures it, and thereby creates the need for purposive policy intervention. It is argued that with the rise of technology the problem of discrimination as focal point will get more acute and we will have to think in terms of affirmative action or a system of taxation and subsidy to support groups that get excluded.