An Empirical Test of Taste-based Discrimination Changes in Ethnic Preferences and their Effect on Admissions to the NYSE during World War I

Petra Moser

NBER Working Paper No. 14003
Issued in May 2008
NBER Program(s):Development of the American Economy, Labor Studies

A significant challenge to empirically testing theories of discrimination has been the difficulty of identifying taste-based discrimination and of distinguishing it clearly from statistical discrimination. This paper addresses this problem through a two-part empirical test of taste-based discrimination. First, it constructs measures of revealed preferences, which establish that World War I created a strong and persistent shock to ethnic preferences that effectively switched the status of German Americans to an ethnic minority. Second, the paper uses this shock to ethnic preferences to identify the effects of taste-based discrimination at the example of traders at the New York Stock Exchange (NYSE). A new data set of more than 4,000 applications for seats on the NYSE reveals that the War more than doubled the probability that German applicants would be rejected (relative to Anglo-Saxons). The mechanism of taste-based discrimination is surprising: Prices are unaffected by ethnic preferences, and discrimination operates instead entirely through admissions.

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Document Object Identifier (DOI): 10.3386/w14003

Published: “Taste - Based Discrimination. Evidence from a Shift in Ethnic Pr eferences after WWI.” Exploration in Economic History , Volume 49, Issue 2, April 2012, pp. 167 – 188 .

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