Abstract
In this paper, we introduce a new role of quotas, e.g. labor market quotas: the attentional role. We study the effect of quota implementation on the attention allocation strategy of a rationally inattentive (RI) manager. We find that quotas induce attention: a RI manager who is forced to fulfill a quota, unlike an unrestricted RI manager, never rejects minority candidates without acquiring information about them. We also demonstrate that in our model quotas are behaviorally equivalent to subsidies. In addition, we analyze different goals that the social planner can achieve by implementing quotas. First, quotas can eliminate statistical discrimination, i.e. make the chances of being hired independent from the group identity. Second, when the hiring manager has inaccurate beliefs about the distribution of candidates' productivities, the social planner can make the manager behave as if she has correct beliefs. Finally, we show how our results can be used to set a quota level that increases the expected value of the chosen candidates.
Highlights
Labor market quotas have become a heavily-used governmental policy instrument in recent years
In this paper we explore the effect of quota implementation on the behavior of an rationally inattentive (RI) agent
We primarily focus on the effect of a quota in the labor market, the results of our analysis could be applied to studies of individual behavior in other areas, e.g. a quota on the proportion of safe assets that must be in the portfolio of a financial manager or a quota on the number of orders a taxi driver can reject when searching for a client using peer-to-peer ride sharing applications
Summary
Labor market quotas have become a heavily-used governmental policy instrument in recent years. These adjustments to the logit model lead to several changes in the agent’s behavior. For some priors the social planner prefers not to impose a quota and the agent still does not acquire any additional information. The social planner benefits by forcing the agent to fulfill quotas and, increases the expected value of the chosen option. The agent’s choice would be based on the relative benefits from the choice of the alternative as in the standard logit model We show that this situation is equivalent to a blind resume policy, in which the group identity is hidden from the employer.
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