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Can Bail Bond Dealers Reduce Discrimination?—A Commentary by Ian Ayres ’86

The following commentary was published in The New York Times on January 30, 2008.

Can Bail Bond Dealers Reduce Discrimination?
By Ian Ayres ’86

Adam Liptak has an excellent article in the Times that looks at an example of American exceptionalism: the Bail Bond Dealer. This really is a pariah industry. As Liptak put it:
Most of the legal establishment, including the American Bar Association and the National District Attorneys Association, hates the bail bond business, saying it discriminates against poor and middle-class defendants, does nothing for public safety, and usurps decisions that ought to be made by the justice system.

The great judge Skelly Wright summed up the consensus view when he said: “[T]he professional bondsman system … is odious at best.”

But market competition among bond dealers may actually reduce discrimination against poor and middle-class defendants.

Judges can sometimes discriminate when setting bail, and competition among bond dealers serves to lessen the impact of that judicial discrimination. For example, imagine that Levitt and Dubner are charged with the same crime and both have the same propensity to flee. But imagine that the judge has it in for Levitt and sets his bail at ten times Dubner’s bail (say $50,000 versus $5,000). In a competitive market, bond dealers may realize that Levitt will be more deterred by a $50,000 bail and may be willing to set a lower non-refundable percentage fee to bail Levitt out of jail. They might charge Dubner a 10 percent non-refundable fee to write his bond (in this case charging him $500) but they might only charge Levitt a four percent fee (in this case charging Levitt $2,000). What starts out as a ten-fold difference in bail, becomes only a four-fold difference because of market competition.

Opponents of bail bonds argue that a higher bond will not reduce Levitt’s probability of flight, as it’s designed to do, if Levitt uses a bond dealer. The non-refundable fee is a sunk cost to Levitt. Levitt isn’t liable to lose the higher bond if he skips town; the bond dealer is. But higher bonds can still deter flight even when defendants pay a non-refundable fee. If Levitt and Dubner both use bond dealers, Levitt is less likely to flee because he knows that a bond dealer will rationally search harder to protect $50,000 than to protect $5,000.

Even though Levitt and Dubner have the same generalized propensity to flee, the bond dealers in a competitive market nonetheless charge Levitt a lower percentage fee because they think the probability that he will flee is lower. Indeed, in a truly competitive market, the bail bond percentage fee is one of the oldest prediction markets. A four percent fee is a market indication that Levitt has a four percent probability of flight.

The bail bond dealer’s ability to mitigate judicial discrimination is not just a theoretical possibility. Joel Waldfogel and I crunched some numbers on bail setting and bond fees in Connecticut state court and found just this effect. A Market Test for Race Discrimination in Bail Setting, 46 Stanford Law Review 987 (1994).

After controlling for eleven variables relating to the severity of the alleged offenses, we found that judges set bail amounts for black male defendants that were 35 percent higher than those set for their white male counterparts. But the bond dealers turned around and undid a substantial proportion of the disparity.

[B]ond dealers charged black male defendants rates that were almost 19 percent lower than the rates charged to white male defendants…Our results showing significantly lower bond rates (alongside a traditional regression showing significantly higher bail amounts for black defendants in our sample) constitute powerful market evidence of unjustified racial discrimination in bail setting. The market evidence indicates that judges in setting bail demanded lower probabilities of flight from minority defendants. Judges could have reduced bail amounts for minority males without incurring flight risks higher than those deemed acceptable for white male defendants.

For all its faults, competition among bond dealers in at least one market may be responsible for mitigating more than half of the effects of racially disparate bail setting. Bond dealers are routinely criticized for usurping “decisions that ought to be made by the justice system.” But usurping the power of judges who unconsciously discriminate might actually be a hidden advantage of the American system.