Categorical Screening with Rational Inattention

Abstract

We consider a rationally inattentive screener who evaluates pools of candidates from distinct and observable social categories. Candidates choose how much effort to invest before being screened, with a payoff in a post-screening market that depends on the screening outcome. This model has multiple stable equilibria, and even ex ante identical categories can receive asymmetric equilibrium treatment. The imposition of a quota, a lower bound for acceptances from a category can result in increases in both screening intensity and skill investment, by destabilizing the least active equilibrium. The endogeneity of screening enables powerful comparative statics analyses with respect to differences across categories in the cost of being screened, the bias faced in the screening process, and the distribution of the costs of investment, allowing us to unify and extend several strands in the literature on categorical inequality.