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The authors develop a dynamic model that can explain identity switching activities among a stereotyped population, such as passing and selective out-migration, based on the group reputation model developed in Kim and Loury (2008). The more talented members of the population, who gain more by separating themselves from the masses, have a greater incentive to pass for an advantaged group with a higher collective reputation (incurring some cost of switching) or differentiate themselves by adopting the cultural traits of a better-off subgroup to send signals of their higher productivity to employers. They also show how an elite subgroup may grow autonomously out of the stereotyped population, when the most talented members adopt the cultural indices that are not affordable to other members of the population.
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