Presentation Transcript

1. PPS231S.01Law, Economics, and Organization

   Spring 2012 VI.1. Discrimination
2. Discrimination The Taste for Discrimination Some people do not like to associate with members of racial, religious, or ethnic groups different from their own and will pay a price to indulge their taste. There are pecuniary gains to trade between various racial, religious, or ethnic groups – much like there are gains to international trade.
3. Discrimination The Taste for Discrimination But by increasing contact between the members of each group, such trade imposes non-pecuniary – but real – costs on those members of either group who dislike association with members of the other groups. These costs are analogous to transportation costs in international trade, which also reduce the amount of trading, or of transaction costs in the market participation literature.
4. Discrimination The Taste for Discrimination There is nothing fundamentally inefficient about this, but the wealth effects can be dramatic. Ex.: Assume that whites don’t like to associate with blacks, but that blacks are indifferent. The incomes of many whites will be lower than they would be otherwise – they forgo advantageous exchange.
5. Discrimination The Taste for Discrimination Note furthermore that the incomes of blacks is affected negatively by white preferences – they are prevented from advantageous exchange with whites. Then, if there are more whites than blacks, the reduction in black incomes will be proportionately greater than the reduction in white incomes – because blacks are a smaller part of the economy, the number of advantageous trades they can make with whites is greater than the number of advantageous trades whites can make with blacks.
6. Discrimination The Taste for Discrimination The bottom line is that the black sector is much smaller, and thus much more dependent on trades with whites. International trade analogy: the US vs. Switzerland. The US could survive a substantial reduction in its trade activities – Switzerland would have a harder time.
7. Discrimination The Taste for Discrimination Discrimination is consistent with competition, much like a reduction in international trade due to higher transportation costs is consistent with competitive international markets. There are competitive forces at work, however, that tend to reduce discrimination. In a market with many sellers, the intensity of black prejudice will vary, and those with milder prejudices will be able to increase their incomes or profits substantially by trading with blacks.
8. Discrimination The Taste for Discrimination The least prejudiced sellers will come to dominate the market – much like the people who are least afraid of heights come to dominate jobs that require working at heights: they demand a smaller premium. This doesn’t mean discrimination disappears completely without government intervention. Some discrimination is efficient (we’ll see why later) and will persist whether or not firm managers have any taste for it. So will discrimination based on consumer preferences, since nothing compels them to change their tastes.
9. Discrimination School Segregation In Brown v. Board of Education, the Supreme Court invalidated state laws requiring or permitting racial segregation of public schools. The Court held that segregated education was inherently unequal because it instilled a sense of inferiority in black children.
10. Discrimination School Segregation The Court had reached a similar decision in Sweatt v. Painter, which held that blacks could not be excluded from state law schools. The Court pointed out that black students in a segregated law school would have no opportunity to develop valuable professional contacts with the students most likely to occupy important positions after graduation.
11. Discrimination School Segregation It rejected the argument that this disadvantage was offset by the disadvantage to white students of being barred from association with black law students – the blacks’ weak position within the legal profession made such associations less valuable to white students.
12. Discrimination School Segregation Following Brown v. Board of Education, even though the Court had made discrimination costly, parents could still send their children to segregated private schools or move to school districts with few black residents – a good amount of such discrimination might persist to this day.
13. Discrimination The Requirement of State Action Fourteenth Amendment: No state shall deny anyone equal protection of its laws or deprive anyone of life, liberty, or property without due process of law. Economic analysis can help distinguishing the issues involved in state vs. private action.
14. Discrimination The Requirement of State Action Three levels of state involvement in discrimination: (i) a law or other official action; (ii) discrimination by a public enterprise; and (iii) state involvement in private enterprises that practice discrimination but not in the decision of the enterprise to discriminate. Both (i) and (ii) were involved in Brown v. Board of Education.
15. Discrimination The Requirement of State Action The analysis is different when discrimination is caused by private a private individual or a firm, even if the state is involved to some extent. The question should be whether state involvement makes discrimination more likely. For example, the state maintains an extensive system of land title recordation and is involved in land use, but that does not increase that a white homeowner will refuse to sell his house to a black buyer.
16. Discrimination Antidiscrimination Laws Federal laws forbidding private discrimination in the sale and rental of real estate, in employment, and in restaurant, hotels, and other public accommodations are often defended on the grounds that (i) they are necessary to eliminate the effect of centuries of discrimination and (ii) promote interstate commerce. Economic analysis helps explain the variance in compliance with antidiscrimination laws. If the interracial associations brought about by such law are slight, the cost of association will be low and punishment is a heavier cost for resisting compliance.
17. Discrimination Antidiscrimination Laws Thus, most housing discrimination cases involve rentals, and not sales. Indeed, under sales, a white seller’s interaction with a black purchaser is limited to negotiating the sale (which very often a broker takes care of.) School integration is different. Not only is the association between children of each group intimate and prolonged, but since black children perform on average worse in schools, integration may involve costs to whites over and above nonpecuniary costs imposed by an imposed association.
18. Discrimination Antidiscrimination Laws So far, we’ve assumes that the intended beneficiaries of antidiscrimination laws benefit, but they may very well not benefit. Blacks pay as consumers and as workers their proportionate share of any cost antidiscrimination laws impose upon firms, but they share these costs with whites whereas benefits only accrue to them. Second, the more it costs firms to employ black workers, the greater the efforts firms will make to minimize their employment of blacks.
19. Discrimination Antidiscrimination Laws For example, they will be less inclined to locate plants or offices in areas of high black population, especially if they are more liable to charges of discrimination the larger the black population.
20. Discrimination Reverse Discrimination It is often urged that blacks should be given preferential treatment (e.g., law schools should set lower admission standards for blacks than for whites even when admission criteria provide unbiased estimates of academic performance.) Is this fundamentally different from old-fashioned discrimination against blacks?
21. Discrimination Reverse Discrimination To answer this question, we need to go behind the assumption that discrimination is simply the result of taste, and look more closely upon the causes of discrimination. For example, discrimination is often anticompetitive – that has played a major historical role in anti-Semitism.
22. Discrimination Reverse Discrimination “Statistical discrimination”: To the extent that race, religion, ethnicity, etc. or some other attribute that is difficult to conceal is positively correlated with the possession of an undesired characteristic, it is rational to discriminate. (Posner uses the example of Myceneaeans and garlic breath…)
23. Discrimination Reverse Discrimination Evidence that job applicants with distinctively black names receive far fewer callbacks than applicants with white names. We’ll cover Bertrand and Mullainathan’s “Are Emily and Greg More Employable than Lakisha and Jamal?” later on – this is consistent both with taste-based discrimination as well as with statistical discrimination.
24. Discrimination Reverse Discrimination I cannot emphasize this enough: The fact that some racial discrimination is efficient or rational does not mean it is lawful. Suppose that all airplane hijackers are members of a specific racial group, but only a small members of that group are airline hijackers. It might be a rational police strategy to do racial profiling. But then, the entire cost of airport searches of innocent persons would be borne by members of one ethnic group – indefensible on utilitarian grounds.
25. Discrimination Reverse Discrimination On the other hand, if a group of witnesses report a theft by a young black male, it would be absurd for the police to look for suspects among other groups. When the differential probability of guilt is much smaller, racial profiling becomes problematic even on pure efficiency grounds.
26. Discrimination Reverse Discrimination Consider a policy whereby Hispanics are more likely to be the subjects of vehicle searches, because they are disproportionately involved in drug trafficking. Then, the policy deters Hispanics from drug trafficking, but crowding them out makes room for other drug traffickers.
27. Discrimination Reverse Discrimination The general point is that the lower the elasticity of substitution between profiled and nonprofiled groups, the likelier racial profiling is to be efficient. So a good test of racial profiling is whether it produces similar “hit” rates across racial groups. There is evidence that the racial profiling done nowadays by the police does so.
28. Discrimination Reverse Discrimination A subtle point is that reverse discrimination brings about undesirable distributive effects within the black population. If employers find it costly to assess individual worker quality, black workers in a given line of work who are as good as their white peers will find it difficult to separate themselves from affirmative-action hires, and they will be assumed to be average (which is itself dragged down by affirmative-action hires.)
29. Discrimination Reverse Discrimination In the language of game theory: we have a pooling equilibrium in which below-average black workers will benefit at the expense of above-average ones (the latter cross-subsidize the former.) Moreover, information costs explain why reverse discrimination is widely unpopular.
30. Discrimination Reverse Discrimination Every time a white male fails to gain admission to a college known to practice affirmative action, there is some probability that this was due to reverse discrimination. But the probability is almost always less than one: suppose four applicants – one black, three white – and the black applicant is admitted. Even if all three whites are better than the black applicant, we know that two out of three whites would not have gotten in under a colorblind policy.
31. Discrimination Schelling: Even Slight Racial Preferences Can Lead to Segregation Suppose that there are three groups in a given city: red, green, and blue, each representing a third of the population. Suppose that each individual likes living in a cosmopolitan city, does not mind the presence of other groups, but prefers a neighborhood in which her own ethnic group is not the minority.
32. Discrimination Schelling: Even Slight Racial Preferences Can Lead to Segregation The end result is full on segregation. Let’s see how this works in practice.