Lawrence Blume

Paper #: 06-07-023

This paper demonstrates how learning dynamics select among equilibria in a statistical discrimination model of employment. The static market model exhibits multiple equilibria. The belief revision dynamic generates a Markov market process which, in the long run, is mostly near one and only one of the static equilibria, regardless of initial conditions. Usually policy effects appear in comparative statics, where the equilibrium set moves with different policies. But here policy is also seen to effect which equilibrium is selected even when it has no comparative statics effect at all.

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