Reparations for African-Americans as a Transfer Problem: A Cautionary Tale

We examine how different methods of reparations payments to African-Americans affect both the black and nonblack populations of the United States using the framework of the transfer-problem from international trade theory as a theoretical foundation. We find that reparations payments that provide incentives for blacks to use the payment toward purchases of goods and services produced by nonblacks might expand the income gap. Also a reparations payment in the absence of productive capacity owned by blacks is found to have no final positive impact on black income. These results indicate that a reparations payment strategy must be carefully and cautiously conceived in order to achieve the desired effects.