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A Righteous Collusion The Prisoner ’ s Dilemma and the Civil Rights Act

Various attempts have been made to explain the sources of long-term discriminatory activity – behavior which does not seem to be profit-maximizing, and yet persists in the face of market competition. Research interest has focused on the effect of Title VII of the Civil Rights Act, and whether it has served to decrease employment discrimination or merely exposed firms to costly litigation. Following in the footsteps of Becker (1957), this paper develops a model of employment discrimination that arises as the result of consumer preference as opposed to employer or employee tastes. It predicts that many or all firms in a local industry will conspire to halt discriminatory activity simultaneously during periods of rising costs to discrimination, effectively forming a type of cartel. I perform an empirical test based on employment data collected in the period following the passage of the Civil Rights Act. The results provide suggestive evidence of the model’s validity, and confirm the importance of viewing the question of discrimination through a regional lens.