Red Scare? A Study of Ethnic Prejudice in the Prosecutions under the Economic Espionage Act

We empirically test whether the Department of Justice (DOJ) engages in ethnic prejudice against Chinese in its prosecutorial decisions under the Economic Espionage Act (EEA) of 1996. Using data of EEA cases from November 1996 to June 2021, we conduct Becker's outcome test for evidence of ethnic prejudice. We find that Chinese-named defendants were more likely to be dismissed by trial or acquitted by jury, and were found guilty on fewer counts, and on average received harsher indictments. These results are robust regardless of whether we consider all cases or only arguably ``marginal'' cases. We also find that, for those publicly listed victim firms whose trade secrets were allegedly stolen by the charged defendants, the stock market reaction was much more muted to the news on the case filing date if the charged defendants are of Chinese descent. Our study provides the first systematic evidence that the DOJ's prosecutorial decisions in the application of the EEA may have been tainted by ethnic prejudice against Chinese, including American citizens of Chinese descent. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.