There is ample evidence that in a variety of markets, women are underrepresented in higher level positions. To improve representation of women in higher level positions, several countries consider some form of affirmative action, for instance by imposing quota. Usually, affirmative action is defended on the basis of some obstacle women face. This obstacle can be explicit discrimination. However, it can also have more subtle causes. For instance, psychologists have found evidence for the “out-group homogeneity hypothesis”, meaning that individuals of one group tend to perceive the members of another group as more similar. We consider the effects quota have when firms have problems recognizing female talent.

In our model, the employer first learns the ability of a female worker with some positive probability. Then the employer decides whether or not a female worker is promoted. Finally all firms compete in wages for each female worker. The promotion decision is public knowledge, as is the probability with which the employer knows the female worker’s ability. In our base mode, wage offers are simultaneous. We show that imposing such quota can benefit the employers, and that outside firms will not compete for every promoted woman. We show that not all women who were promoted on merit stay, and that not all women who were promoted for the quota leave. Although the firm does make an expected loss on women who are promoted for the quota, we also show that employers prefer to be forced to promote some women of unknown ability. Finally, we consider sequential bids for the workers.

joint work with Suzanne H. Bijkerk, Silvia Dominguez-Martinez, and Otto H. Swank