The nature and limits of Gary Becker’s theory of racial discrimination


To what extent does Gary Becker’s model of discrimination capture “the essence of prejudice and discrimination”? After providing a general outline of Becker’s original model and summarizing some subsequent developments, this paper takes a critical perspective on the model to suggest that the absence of imperfect information in his approach unhelpfully limits its explanatory power. Instead, an approach that allows for the possibility of genuine error and draws on Adam Smith’s analysis of the impact of markets on one’s moral sense offers a deeper, more realistic understanding of what it means for people to express their prejudice (or not) through their choices.

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  1. 1.

    For a sample of that literature see Ewens et al. 2014, which looks at how statistically measured discrimination might deviate from people’s underlying prejudice or “taste-based discrimination.”

  2. 2.

    Becker’s approach deduces the consequences of a taste for discrimination for the relative prices of labor, capital, and outputs. Looked at another way, you could say that it traces a persistent differential in those relative prices back to a taste for discrimination, after first eliminating other influencing factors such as differences in productivity. In that sense, it seems to conflict with the Stigler-Becker argument for not disputing tastes. In their famous article on the subject, Stigler and Becker argue that

    one does not argue over tastes for the same reason that one does not argue over the Rocky Mountains-both are there, will be there next year, too, and are the same to all men (Stigler and Becker 1977: 76).

    The gist of which is that a good economist does not resort to tastes to explain the sort of price differences he discusses in his 1957 book. Or, “the economist continues to search for differences in prices or incomes to explain any differences or changes in behavior” (Stigler and Becker 1977: 76). Is it inconsistent on Becker-Stigler grounds (20 years later) to “explain” wage differences on the basis of differences in tastes?

  3. 3.

    Cain points out that this side of racial discrimination is often ignored when you model discrimination as W(1 + di): “There are some disadvantages of the measure and some properties that may be either advantageous or disadvantageous depending on the question one is asking. No attention is paid to any pain or stigma felt by the victim. A lower price for one’s services appears to capture the extent of victimization and to be on the same footing as a lower price owing to an inferior standard property of the good being sold” (Cain 1986: 719).


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I wish to thank the Liberty Fund for providing me the occasion to write this paper and the comments provided by participant of the Colloquium on Market Institutions and Economics Process at New York University, the 3rd Cosmos + Taxis Conference in Milan, Italy, and the Liberty Fund Colloquium on “Revisiting the Intellectual Contributions of Gary Becker.” The usual caveat applies.

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Correspondence to Sanford Ikeda.

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Ikeda, S. The nature and limits of Gary Becker’s theory of racial discrimination. Rev Austrian Econ 31, 403–417 (2018).

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  • Gary Becker
  • Discrimination
  • Prejudice
  • Imperfect knowledge
  • Choice
  • Adam smith
  • Prudence

JEL classification

  • B31
  • B41
  • D89
  • J71