Institutional Discrimination is the adverse treatment of and impact on members of certain groups due to the explicit and implicit rules that regulate behavior (including rules set and enforced by firms, schools, government, markets, and society). Institutional discrimination occurs when the rules, practices, or nonconscious understanding of appropriate conduct systematically advantage or disadvantage members of particular groups.

Institutional discrimination may result in equilibrium allocations that are unfair and inefficient. Government intervention may be necessary to address the discriminatory practices. Institutional discrimination is most subtle and pervasive kind of discrimination. If people cannot pinpoint the source of their problems, or if they discover the source is too powerful to challenge, they may direct their anger at a scapegoat, a weak, convenient, and socially approved target.

Historically, scapegoats (usually minorities) have shouldered the blame and have paid terrible penalties for “causing” society’s ills. In a high rise apartment building, a new manager took over and she targeted a young mulatto male. Putting 24-hour tow notices on his car, auditing his parking documents three times in one year, while allowing unauthorized cars to park in the lot. She also spread rumors about him with her coworkers and other tenants.

The Civil Rights Act of 1964 dramatically altered historic patterns of discrimination. Not only did it prohibit racial and ethnic discrimination in the workplace, it mandated that the government ensure equality of opportunity. The Fair Housing Act of 1968, which banned discrimination in housing. Housing studies show that discrimination persists, although subtler forms than the past. The bottom lines, everyone knows not to spread rumors and gossip about private information, it harmful and illegal.