Linguistic intervention unlocks the economic gains of diversity

Gains from trade generate prosperity, yet interpersonal exchange can falter along racial lines. We study incentivized experimental economies where participants must spontaneously initiate and sustain trading relationships with others whose race is visible. When the highest gains from trade require cross-race exchange, diverse economies underperform: welfare and specialization suffer as many retreat to autarky. This underperformance reflects not segregation into racial trading blocs, but a collapse in exchange. Opportunities for contact alone do not close the performance gap, which persists and even widens over time. To understand why, we turn to communication itself. Lower welfare is associated with less communication, fewer expressions of affiliation and achievement, and less explicit signaling of needs, deficits, and surpluses. We call this communicative misalignment: differences in shared-language use that raise search, bargaining, and coordination costs. A brief linguistic intervention equips participants with a communicative toolkit. It increases communication volume and the frequency of motivational and state-signaling language. Crucially, when gains depend on cross-race exchange, the intervention restores specialization and cross-race trade, closing the performance gap. Its effects are minimal when efficient trade need not cross race, indicating specificity rather than generic skill training. Language thus operates bidirectionally, both revealing the state of cooperation and causally shaping it. Although we examine racial boundaries, the mechanism may operate along other fault lines where interactional norms diverge, including hierarchy, geography, or culture. Language, a primary conduit of culture, can impede exchange when misaligned and facilitate it when aligned. This suggests a scalable micro-governance tool for reducing transaction costs.