Strategic Discrimination in Hierarchies

In a laboratory setting, we explore strategic discrimination in principal-agent relationships, which arises from mutually reinforcing expectations of identity-contingent choices. Our experimental design isolates the influence environment effects other sources discrimination, including statistical differences between subpopulations and outright prejudice. We find that, principals who reward agents on basis outcomes more readily attribute high performance to effort when they share agent’s group identity. No such bias exists either for whose decisions are outcome independent or nonstrategic environment. Agents setting tend anticipate higher demands out-group condition their choice that expectation. Because underappreciate this conditionality, underestimate agents.