The Economics of Discrimination: The Three Fallacies of Croson

In City of Richmond v. J.A. Croson Co. the Supreme Court limited the ability of governments to use affirmative action to remedy what might be termed "no fault" discrimination - that is, discrimination in which those who have been harmed have no remedy under antidiscrimination law, either because the discrimination occurred long in the past, because the specific perpetrators cannot be identified, or because of a lack of proof. The Court's limit on the use of race-based affirmative action is based on three arguments. First, the Court suggests that racial asymmetries in markets do not necessarily represent an injury to excluded minority group members. Second, it proposes that minority exclusion from these markets can be remedied through race-neutral policy. And third, it argues that a race-conscious program to benefit victims of no-fault discrimination is likely to be over-inclusive, creating a "moral hazard" for minority group members and placing an unfair burden on non-minority competitors. An economic analysis of these arguments, however, shows that they are all flawed. This Note examines the effects of discrimination in the marketplace to suggest a connection between current racial disparities and past "no-fault" discrimination. It then demonstrates why race- neutral policies are likely to prove ineffective for reducing these disparities. Finally, it argues that competitive, race-conscious affirmative action is unlikely to create a "moral hazard" and that the burden placed on non-minorities by such a program is justifiable.