Discrimination based on real group average characteristics is a kind of externality within groups. Observers choose which groups to notice, then the behaviour of those in the groups alters the overall reputation of the group. We mostly blame those who choose the groups for this, not those who externalize within them. But if  we somehow stopped thinking in terms of any groups other than the whole population, the externality would still exist, you just wouldn’t notice it because it would be amongst all humans equally. If someone cheated you, you you would expect all people to cheat you a little more, whereas now you may notice the cheater’s other characteristics and put most of the increased expectation on similar people, such as Lebanese people or men.

Does this perspective change where to lay blame for the harm caused by such discrimination? A bit, if the point of blame is to change behaviour. Changing the behaviour of the category makers is still useful, though we probably try to change them in the wrong direction sometimes. But another option is to deal with the externalities in the usual fashion: subsidise positive externalities and tax negative ones. This is done via social pressure within some groups. Families often use such a system, thus the derision given for ‘bringing shame to the family’, along with the rewards of giving parents something to accidentally mention to their friends. Similar is seen in schools and teams sometimes I think, and in the occasional accusation ‘you give x a bad name!’, though that is often made by someone outside the group. I haven’t heard of it done much in many other groups or via money rather than social pressure. Are there more such examples?

One reason it is hard to enforce accountability for such externalities is that boundaries of groups are often quite unclear, and people near the edge feel unfairly treated if they fall on the more costly side. The less clear is the group boundary the more people are near the edge. Plus people toward the edge might only be seen as in the group a quarter of the time or something, so they aren’t externalizing or being externalized to so much. Families are a relatively clearly bounded group, so it is easier for them to punish and reward effects on family reputation. Gender is a relatively clear boundary too (far from completely clear, but more so than ‘tall people’), so I would expect this to work better there. Could women coordinate to improve the reputation of women in general by disrespecting the ones who complain too much for instance? Should they?

Of  course in a few areas making one group look better just makes another group look worse, so if all the externalities were internalized things would look just as they are. I don’t think this is usually the case, or the entire case.