Persistent Disparities

Past empirical research suggests that investors have a taste for racial discrimination despite the theoretical economic consequences of such actions. We posit that in a setting where market participants are motivated by performance expectations, such consequences should discourage discrimination. We explore this conjecture using hand-collected photographs to classify fund manager race. We find that blacks are severely under-represented in the mutual fund market. In a laboratory experiment where race is salient but skill is absent, investors do not consider race when making allocation decisions. Rather, they base their decisions on past performance. We confirm these findings using archival data. Our findings indicate that, in a highly competitive market where performance is observed, investors do not derive utility from indulging in racial discrimination. Reducing barriers to entry arising from scholastic disparities can help alleviate black under-representation