Discrimination in Strategic Settings⇤

In a laboratory investigation of a principal-agent relationship with moral hazard, we analyse strategically induced discrimination. We isolate the influence of the strategic environment from the e↵ects of other sources of discrimination, including group statistics and taste for discrimination. We find that, in a strategic setting, principals who reward agents contingent on agent-generated outcomes also attribute good outcomes more readily to e↵ort when they share a social identity with the agent. No such bias emerges either for principals whose reward decisions are not contingent on outcomes or for the principals in a non-strategic environment. In the strategic setting, agents tend to anticipate lower demands from same-identity principals and condition their e↵ort choice on that expectation. We argue that these choices are not driven by reciprocity but related to attitudes toward risk.