Economics Dictionary of ArgumentsHome
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| Discrimination: Discrimination is the unfair or prejudicial treatment of people and groups based on characteristics such as race, gender, age, religion, sexual orientation, or disability. See also Racism._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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Armen A. Alchian on Discrimination - Dictionary of Arguments
Henderson I 31 Discrimination/Alchian/Henderson/Globerman: „Discrimination in choosing employees by reason of race, creed, sex, beauty, or age will be more pronounced in not-for-profit firms than in business firms.“(1) Costs of discrimination: [context: Private companies do not discriminate as strongly as public institutions]: The government-run City colleges of Chicago could discriminate against a high-quality applicant because no one owned the university and, therefore, no one bore a cost for this discrimination. But the ad agency was a for-profit company. If the company passed up the opportunity to hire someone Who would do a good job, it wouldn't do as well financially. >Private sector, >Public sector. By taking longer to find someone as good or by settling for someone less skilled, the company would suffer financially for its decision to discriminate, which is why the company that hired him didn't ask him about his political background - it didn't care enough to risk its profits. >Cost, >Rate of Profit, >Profit, >Racism, >Prejudice, >Discrimination/Becker. Henderson I 32 Alchian/Kessel: In their famous 1962 article, "Competition, Monopoly and Pecuniary Gain"(2), they asked, "But why do monopolistic enterprises discriminate against negroes more than do competitive enterprises?" AlchianVsBecker: They went on to point out that there was no good reason, or at least no reason that Becker gave, to expect monopolistic enterprises to discriminate more against black people than competitive enterprises did. Alchian and Kessel provided the missing logic. Monopolies: Monopolies, they noted, tend to get their monopoly power from the government. Governments often prevent other firms from competing. Public sector: Public utilities are an example. But often the government, in return for granting monopoly power, regulates the profits of the monopolies. Wrote Alchian and Kessel: "Their cardinal sin is to be too profitable."(2) In their article, Alchian and Kessel noted an important implication: "If regulated monopolists are able to earn more than the permissible pecuniary rate of return, then 'ineffciency' is a free good because the alternative to ineffciency is the same pecuniary rate of return and no 'ineffciency."'(2) Henderson I 33 In other words, once regulated monopolies bump up against the profit constraint imposed on them by government, they can't legally earn more and so they "spend" what would otherwise be the additional profits on things that can be considered consumption items. Alchian and Kessel, writing in a less politically correct era, gave a long list of these other items, a list that includes "pretty secretaries," "lavish offces," and "large expense accounts." Racism: Where does racial discrimination come in? As noted above, the cost of racial discrimination limits the amount of racial discrimination that will occur. But if the government constrains firms to earn Iower profits than they could otherwise earn, racial discrimination, like ineffciency, becomes a "free good." Therefore, we would expect to see more racial discrimination in monopolistic firms whose profits are regulated by governments. Test of the hypothesis: Alchian and Kessel tested their hypothesis by analyzing a sample of 224 non-Jewish and 128 Jewish MBA students Who had graduated from the Harvard Business School. The graduates were employed in 10 major industry categories. Of the 10, they wrote, the two industries with the greatest regulatory restrictions discouraging effcient production were "transportation, communication and other public utilities" and "finance, insurance and real estate." Although 36 percent of the MBAs were Jewish, their representation in the two most heavily regulated industries was only 18 percent. The probability of this outcome happening by chance, they noted, was less than 0.0005.* Attenuating the rights of the owners of the regulated companies to use their property to increase profits had the effect of encouraging anti-social behaviour and outcomes. *For an overview of this Study and several other seminal studies on property rights by Alchian, see Henderson (2019)(3). 1. Armen A. Alchian (2006), "Some Economics of Property," p. 48. 2. Alchian, Armen A., and Reuben A. Kessel (1962). Competition, Monopoly and Pecuniary Gain. In H.G. Lewis (ed.), Aspects of Labor Economics (National Bureau of Economic Research): 157-183. 3. Henderson, David (2019, May 6). Economics Works. Liberty Classics. Econlib. |
Alchian I Armen A. Alchian William R. Allen Exchange and Production: Competition, Coordination and Control Belmont, CA: Wadsworth 1977 Henderson I David R. Henderson Steven Globerman The Essential UCLA School of Economics Vancouver: Fraser Institute. 2019 |
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> Counter arguments against Alchian
> Counter arguments in relation to Discrimination
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