Explain the moral hazard involved when government extends "protective" treatment, with targeted laws and benefits, to particular "groups" or categories of individuals who have been, or believe they have been, the victims of discrimination based on some real or perceived shared characteristic.

A moral hazard happens when an action anticipated to protect a group or person and prevent or correct a problem actually creates the problem it was intended to avoid or correct. Affirmative action is considered by some to be a moral hazard, but we should be skeptical that this is actually the case.

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Let's begin by reviewing the concept of “moral hazard.” A moral hazard occurs when someone acts in such a way that risks actually inducing the very behavior or outcome they are trying to avoid through their action. Some would argue that the practice of affirmative action is an example of a moral hazard.

Affirmative action is meant to encourage schools and companies to admit or hire more people from minority groups. Proponents of affirmative action hope to decrease discrimination against minorities and open up new opportunities for them in education and the job market. Think, for example, of a scenario in which two people, one white and one Black, are applying to the same university. They are both well qualified, but the white student has a slightly higher GPA and a slightly better selection of preparatory classwork and relevant extracurricular activities. Without affirmative action in place, the white student would probably have been admitted due to their qualifications. With affirmative action in place, however, university admissions officers might choose instead to admit the Black student due to historical and systemic factors which have locked Black people out of higher education.

Some people might argue that affirmative action has actually created a situation of discrimination, and therefore created a moral hazard. However, it is important to remember that affirmative action is in place to correct historic, racist biases against people of color in schools and workplaces, so it's fair to question whether it is actually a moral panic. Additionally, it is important to note that affirmative action actually disproportionately benefits white women, and we should be skeptical when we hear claims that affirmative action is “reverse racism.”

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