Shelby Grossman and Dan Honig. “These are my People: Evidence from Lagos on the Determinants of Informal Price Discrimination.” pdf
This paper investigates the determinants of illegal price discrimination in the housing and rice markets in one neighborhood of Lagos, Nigeria. In so doing it is among the first experimental audits of discrimination in Africa, a methodology with great potential to elucidate the shape and scope of discrimination in contexts in which unequal treatment can lead to socially destabilizing conflict. We demonstrate the existence of discrimination on class and ethnic bases, and show evidence suggesting that this discrimination is based in empathy, or felt ties, rather than attempts by sellers to maximize profit. This discrimination is of a much greater frequency and magnitude than that in US housing audit studies, consistent with our hypothesis that discrimination will be greater where legal institutions which censor discrimination are weaker. We also show evidence suggesting that when identities are made more salient discriminatory preferences are stronger. We find no support for a readability hypothesis; sellers are no better at reading ability to pay of coethnics than non-coethnics.
Nathaniel Leff, Jeffry Frieden, and Shelby Grossman. “Trust and Envy: The Political Economy of Business Groups in Developing Countries.” pdf
Diversified business groups play a major role in the economies of many developing countries. Business group members, often from the same communal, ethnic, or tribal group, have or develop inter-personal relations that make it easier to obtain information and monitor compliance related to transactions that require a strong measure of trust. This in-group cohesion facilitates profitable and productive economic activity. However, it can create resentment among other members of society who are barred from membership in a group that is, of necessity, exclusive. This envy can fuel a self-reinforcing cycle of societal hostility and group protectiveness that can deprive society of the economic benefits the groups can provide. There are several possible reactions such as ‘affirmative action’ programs that can slow or stop the cycle of envy and group vulnerability.