Should the Government Be Targeting a Different Kind of Discrimination?

A new working paper from Uri Gneezy, John List, and Michael K. Price looks at discrimination via a variety of field experiments and more than 3,000 individual transactions:

In certain markets, the observed discrimination is not bigotry or animus-based, but consistent with the notion of profit-maximization, or Pigou’s (1920) “third-degree price discrimination”: in their pursuit of the most profitable transactions, marketers use observable characteristics to make statistical inference about reservation values of market agents. In others, the discrimination is more in line with Becker’s (1957) taste based theory of discrimination, or animus.

Interestingly, the nature of discrimination is less driven by particulars of the market or institutions, rather the nature of the disparate behavior is driven by whether the object of discrimination is a choice of the individual or is uncontrollable.

For example, one field experiment examined discrimination against disabled people in the context of car repairs, finding that disabled customers received higher quotes than the non-disabled customers. To get at the nature of this discrimination, the authors first conducted a survey, which revealed that “mechanics believe the disabled approach 1.85 body shops for price quotes while the non-disabled approach 2.85.”  In a second field experiment, the authors instructed participants to say the phrase, “I’m getting a few price quotes.”  This significantly changed outcomes — disabled participants received much lower offers: “Importantly, the lower offers received by disabled testers after signaling a willingness to search are not statistically different from those received by the abled,” write the authors. “In fact, the disabled now receive slightly lower price quotes.”  Additional field experiments examined discrimination by race, sexual orientation, and gender.

The authors point out that their results have important policy implications: “Given its historical significance, the U.S. government for decades has been codifying and erecting rules that forbid animus-based discrimination. Our study suggests that a much different kind of discrimination — statistical discrimination — permeates many markets and is importantly shaping surplus allocations.”

Leave A Comment

Comments are moderated and generally will be posted if they are on-topic and not abusive.

 

COMMENTS: 6

View All Comments »
  1. Amanda says:

    I don’t think so, its not the government’s role to ensure savvy shoppers. The example above demonstrated clearly that a more strategic approach made the price lower. If the price were too high then why engage? Wouldn’t this drive down the price as demand lowered?

    We do not have a right to the same price-true in the legal world, firms can charge what they want. If this were true then the door opens to other economic rights that would cause significant inefficiencies and waste.

    If the government feels that senior citizens should pay less-because they are on fixed income and not working (not because they are less savvy), then aren’t their senior discounts that can be applied?

    Well-loved. Like or Dislike: Thumb up 7 Thumb down 0
    • Voice of Reason says:

      If anything, senior citizens should have to pay more for things. They’ve had years and years available for investing and realizing the benefits of compounding interest and ROI. Plus, their income is passive, and not earned. Contrast that to hard working people who are scraping by, investing instead of spending, and currently the earning the money. Wouldn’t it make sense to give them price breaks, and have them pay more later?

      Thumb up 0 Thumb down 0
  2. blake says:

    No, no, no, everyone is missing the point here. To solve this problem, we must make it extra double super illegal for car shops to give higher price quotes to disabled people. We will call it “animus crime” legislation.
    That is how you get rid of discrimination.

    Thumb up 0 Thumb down 1
  3. PaulD says:

    I’m not sure I’d put it in the same class as “Thou shalt not steal” or “Thou shalt not bear false witness,” but it seems to me a fundamental injustice to charge different people different amounts for the same product. I may end up paying more in China for a restaurant meal than a local would, or pay more for a cab in the Middle East, but that doesn’t make it right. Economists too often think that something is acceptable just because you can get away with it.

    Thumb up 0 Thumb down 2
    • Tim says:

      Do you disagree with any form of bartering?

      Thumb up 0 Thumb down 0
      • PaulD says:

        It may be anecdotal, but the reason I’ve read for why we generally have fixed prices in retail establishments in the US is that Mennonite shopkeepers thought it was dishonest to mark a price on something when they were actually willing to accept a lower price.

        If by bartering you mean exchanges of goods and services without cash changing hands, I have to say that I’m not real keen on it. If for no other reason I think it often constitutes a black market operation in which taxes aren’t being paid (again, a fairness issue).

        The basic issue for me is that the retail price you pay a particular agent for a particular good should be the same for everyone. My own feeling is that the price I pay should not be a function of how clever I am at negotiating or even — for example, beautiful young women seeking admittance to a night club — how beneficial my patronage is to the business, and I think the government should enforce that.

        Thumb up 0 Thumb down 3