Hamish Low, University of Oxford

Outcome Tests and Screening Errors

Abstract

This paper clarifies the conditions needed to test for discrimination and shows how to test whether observed disparate treatment is taste-based or statistical. We use the context of applications for disability insurance where an authority (the SSA) decides whether to award benefits, possibly with a taste for discrimination against specific groups. We stress the need to specify the objective of the authority, to characterize their information set, and the importance of independent data on an individual’s type. We focus on an authority with an objective to avoid Type I and Type II errors. First, we show that outcome tests `a la Becker may fail to detect discrimination when the distribution of estimated eligibility differs for people who are truly eligible from those who are not – even in circumstances in which the distribution of “ground truth” is independent of group affiliation. Second, we show that self-reported data on eligibility (specifically, self-reported disability) and detailed data on the information set of the authority can distinguish between taste-based discrimination and statistical discrimination. We find strong evidence of taste-based discrimination against women in the award of disability
benefits.

Hamish Low is the James Meade Professor of Economics at the University of Oxford and a Professorial Fellow of Nuffield College, Oxford.

His research is across public finance, labour economics and macroeconomics. The underlying focus of his research agenda is on two broad set of issues: first, what sort of risks do individuals face over their life-times. Second, to what extent can individuals insure against these risks, through their private decisions over saving and labour supply, through their families and through government provided welfare and social insurance.

Key themes in his work are the interaction between different decisions and the dynamic implications of those decisions. For example, in his paper "Marriage, labour supply and the dynamics of the social safety net", that analyses the implications of the introduction of time limits, they show the importance of allowing for the interaction between welfare claiming, labour supply and divorce.

You can read more about Hamish Low here

CEBI contact: Thomas Høghlom Jørgensen