BOHANON & STYRING: Market incentives undermine discrimination

April 11, 2015

Economic AnalysisWe are not going to write about the Religious Freedom Restoration Act. That posse is plenty big enough without us piling on. We do, however, make a claim relevant to the debate—namely, that the best ongoing insurance against discrimination is our old friend the marketplace. 

Economic actors are constantly bringing supply and demand into balance, although they are rarely aware of this. However, responding to market incentives tends to undermine discrimination.

Consider Julia. Julia is a talented pianist. For $50 an hour, she plays for wedding receptions, bar mitzvahs and such. Julia has a peculiar prejudice, though. She really hates people whose last names begin with the letters A through M. Styring can hire Julia to play for his soiree, but Bohanon is out of luck.

Julia’s income is less than what it could be and there is no mystery to this: She has cut herself off from half the market. She is “buying” discrimination and she pays a price. Apparently, practicing her prejudice is worth the forgone income to her.

If Julia is the only pianist with this eccentric prejudice, there is little harm even to Bohanon. He can always find an alternative. But what if all pianists share Julia’s prejudice? In this case, Styring can get a pianist for his party, but Bohanon can’t find one at all. It would seem this prejudice could persist indefinitely. 

True enough. But note there is also an incredible entrepreneurial opportunity. If Julia is willing to set aside the prevailing prejudice, there is a gold mine in serving the A-M’s! Of course, the other pianists might shun and ostracize Julia for violating the A-M prejudice. They might even get a law passed forbidding Julia from serving the A-M’s, or might threaten violence against her or her customers.  But there is great economic gain in undermining prejudice, as Branch Rickey and Jackie Robinson so heroically demonstrated when integrating Major League Baseball in 1947.

Viewed from a historical perspective, free-market capitalism has done great work in undermining prejudice. During the bloody religious wars of previous centuries, Catholics and Protestants lived in peace in commercial Amsterdam. Profit trumped piety and prejudice.

The point in these examples—and almost always in the real world—is that discrimination against any particular group opens an entrepreneurial opportunity for potential competitors. Free markets don’t eliminate all forms of discrimination instantly. They do make discrimination costly and work constantly to reduce it.•


Bohanon is a professor of economics at Ball State University. Styring is an economist and independent researcher. Both also blog at INforefront.com. Send comments to ibjedit@ibj.com.


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