Valuing Diversity ⇤ Roland

Diversity-enhancing policies are practiced around the world. This paper explores the economics of such policies. A model is proposed where heterogeneous agents, distinguished by skill level and social identity, purchase productive opportunities (or slots) in a competitive market. The problem of designing an e cient policy to raise the status of a disadvantaged identity group in this competition is considered. We show that: (i) when agent identity is fully visible and contractible, e cient policy grants preferred access to slots, but o↵ers no direct assistance for acquiring skills; and, (ii) when identity is not contractible, e cient policy provides universal subsidies to skill development when the fraction of the disadvantaged group at the skill development margin is larger than their share at the slot assignment margin. ⇤We are grateful to Pierre-Andre Chiappori, Edward Glaeser, Lawrence Katz, Bernard Salanie and two anonymous referees for helpful comments and suggestions. We also thank seminar participants at numerous universities. Fryer is at the Department of Economics, Harvard University, and NBER, 1875 Cambridge Street, Cambridge MA 02138 (e-mail: [email protected]); Loury is at the Department of Economics, Brown University, 64 Waterman Street, Providence RI 02912 (e-mail:Glenn [email protected]). Loury gratefully acknowledges financial support from the Andrew W. Mellon Foundation and the Carnegie Corporation