An economic study that caused me to change my mind.

I have believed for a long time that racial segregation would have been a small problem if not for laws requiring it. One of the strong examples in favor of my belief was the street car story:

In Augusta, Savannah, Atlanta, Mobile, and Jacksonville, streetcar companies responded by refusing to enforce segregation laws for as long as fifteen years after their passage. The Memphis Street Railway “contested bitterly,” and the Houston Electric Railway petitioned the Houston City Council for repeal. A black attorney leading a court battle against the laws provided an ironic measure of the strength of the streetcar companies’ resistance by publicly denying that his group “was in cahoots with the railroad lines in Jacksonville.” As pressure from the government grew, however, the cost of defiance began to outweigh the market penalty on profits. One by one, the streetcar companies succumbed, and the United States stumbled further into the infamous morass of racial segregation.

From Jennifer Roback, “The Political Economy of Segregation: The Case of Segregated Streetcars.” Journal of Economic History 56, no. 4 (December 1986): 893-917, quoted in Linda Gorman, “Discrimination,” in David R. Henderson, ed., The Concise Encyclopedia of Economics.


I might have been badly wrong. I have little doubt about the streetcar story. But it turns out that, strong as that evidence is, one cannot generalize easily from that story.

I attended a seminar at the Naval Postgraduate School yesterday presented by Justin Marion, an economist at UC Santa Cruz. It was based on Ricard Gil and Justin Marion, “Customer versus firm discrimination: Evidence from desegregating movie theaters during Jim Crow.”

Here’s a short paragraph from their paper:

Prior to June 1953, segregation in Washington DC was widely practiced. To the best of our knowledge, there does [sic] not appear to exist any Jim Crow laws in the District mandating segregation. Despite the lack of legal requirement to do so, most movie theaters excluded customers of color, as did restaurants and other private businesses.

I would have thought that the profit motive would have caused the majority of movie theaters in a market that size to allow black people into their theaters. But no.

It turns out, according to Gil and Marion, that it was the profit motive that caused movie theater owners to exclude blacks. They have a clever event study showing that. In June 1953, the Supreme Court found that anti-segregation laws enacted by the D.C. city government in 1872 and 1873 did indeed need to be enforced. Since the ruling applied only to D.C., Gil and Marion can compare revenues at each movie theater before and after the decision with revenues at movie theaters in 25 other cities.

Their hypothesis was that if discriminatory tastes on the part of owners were the only factor responsible for discrimination, then owners’ profits should rise after the decision. This is the standard Gary Becker model of discrimination by firms: Firms that wish to discriminate give up profits to do so. So, once they can no longer legally discriminate, and the law is well-enforced, they will make more money but be worse off.

But what if the owners were not particularly racially biased but a large percent of their white customers were? Then, reason Gil and Marion, when the movie theaters are desegregated, you would expect the profits of previously white-only movie theaters to fall. And that’s what happened. Gil and Marion don’t have direct data on profits but they do have data on revenues. After the Supreme Court decision, revenue per week fell by 11 percent.

As one of my former colleagues at the seminar pointed out, what makes this all the more striking is that this was a result for movie theaters, where you aren’t even that aware of the color of people around you. So you would think that racists would be “less racist” about fellow movie-goers than about, say, fellow restaurant patrons.

Interesting tidbit: In their acknowledgements, the authors thank the Koch Foundation for financial support.