Costly Screening and Categorical Inequality

We consider a rationally inattentive screener who evaluates a pool of candidates composed of distinct and observable social categories. There is heterogeneity across categories in the costs of being screened, the degree of bias faced in the screening process, and the costs of investment in skills. Candidates choose how much effort to invest before being screened, with a payoff in a post-screening market that depends on the screening outcome. We characterize equilibrium in this model, and use it to unify and extend several strands in the literature on categorical inequality, including statistical discrimination, prejudice, and social capital