“Identity and Intergroup Bargaining: with Applications to Class and Race and Diversity and Economic Performance” by Stephen Chiu
The University of Hong Kong
We propose a general framework of group cooperation and competition, in which members belong to the same group sharing common economic interest and non-economic characteristics (race, religion, etc.). Members are concerned not only about material payoffs but also about psychological payoffs derived from cooperation. More specifically, we assume that similarity among members of the group leads them to prefer interactions with members of the same group than with non-members, and we refer to these non-economic preferences as group solidarity. We study (1) how group solidarity affects groups' economic payoffs, (2) the incentive for each group to strengthen its solidarity, (3) the incentive for one group to influence another group's solidarity, and (4) the relationship between a country's racial diversity and its economic performance. Our paper contributes to three strands of literature: diversity and economic performance (Easterly and Levine 1998 and Alesina and La Farrara 2000, 2005), political economy of belief manipulation (Roemer 1998, Mui 1999, Glaeser 2005), and intergroup relation in psychology (Brewer and Miller 1996).