Cultural Transmission, Discrimination and Peer Effects∗

Workers can have good or bad work habits. These traits are transmitted from one generation to the next through a learning and imitation process which depends on parents ’ investment on the trait and the social environment where children live. We show that, if a high enough proportion of employers have taste-based prejudices against minority workers, their prejudices are always self-fulfilled in steady state. Affirmative Action improves the welfare of minorities whereas integration is beneficial to minority workers but detrimental to workers from the majority group. If Affirmative Action quotas are high enough or integration is strong enough, employers ’ negative stereotypes cannot be sustained in steady-state. J.E.L. Classification: J15, J71