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random, unobserved differences in auditors. Conversely, the net measure, although intended to capture differences in treatment that result from racial discrimination, underestimates discrimination. The hypothesis underlying the net measure is that the frequency with which the minority auditor is treated adversely because of factors unrelated to race can be proxied by the frequency with which the white auditor is treated adversely. Underestimates of discrimination result because instances in which the white auditor is treated less favorably are netted out, even though these differences may be attributable to unobserved adverse treatment of the minority auditor (Ondrich et al., 2000). The use of gross and net measures is discussed in greater detail in Chapter 5.

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