| Sumario: | Historically and in many parts of the developing world, ethnic minorities have played a central role in the economy. Examples include Chinese throughout South‐east Asia, Indians in East Africa, and Jews in medieval Europe. These rich minorities are often subject to popular violence and extortion, and are treated ambiguously by local politicians. We analyse the impact of the presence of a rich ethnic minority on violence and on interactions between a rent‐seeking local elite and a poor majority. We find that the local elite can always make use of the rich minority to maintain its hold on power. When the threat of violence is high, the government may change its economic policies strategically to sacrifice the minority to popular resentment. We investigate the conditions under which such instrumental scapegoating emerges, and the forms it takes. We then introduce some social integration, capturing, for instance, mixed marriages and shared education. Social integration reduces violence and yields qualitative changes in economic policies. Overall, our results help to explain documented patterns of violence and segregation.
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