Subtle Discrimination

We introduce the concept of subtle discrimination—biased acts that cannot be objectively ascertained as discriminatory—and study its implications in a model of competitive promotions. When choosing among similarly qualified candidates, a principal with a subtle bias towards a particular group may plausibly deny being biased. We show that subtle (as opposed to overt) discrimination has unique implications. Discriminated candidates perform better in low-stakes careers, while favored candidates perform better in high-stakes careers. In equilibrium, firms are polarized: high-productivity firms become “progressive” and have diverse management teams, while low-productivity firms choose to be “conservative” and homogeneous at the top.