Discrimination on the Workfloor, When Being the Best is no Guarantee for Promotion

This article develops a model of discrimination in organizations where a manager makes a decision to promote one of two employees. This model involves informational asymmetry, with the manager observing the employees abilities, but the employees themselves not. If employees expect discrimination to occur, the manager who anticipates on the effect of his promotion decision on the employees self esteem, rationally follows a strategy that involves discrimination as expected from him. When abilities are independently uniformly distributed on the unit interval, all stable equi- libria involve discrimination. One of the employees is only promoted if he is twice as talented as the other. The remainder of the article analyses information systems where employees obtain private signals, employees who care about fairness of decisions and different shapes of the distributions. Discriminative equilibria are shown to exist under a large variety of settings.