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Does behavioral economics justify paternalism?

That is the question I attempt to answer in a paper forthcoming in the European Journal of Agricultural Economics.  The paper is a summary the plenary address I will give in a couple months at the European Association of Agricultural Economics congress.

The issue at play:

“The traditional economic approach justifies government regulation when there are market failures. Thus, economists have traditionally confined their advocacy for government regulation to well-defined classes of market failures that exist when there are issues like externalities, public goods, market power or information asymmetries. Although these traditional motivations are often mentioned when advocating food policies, the new and particularly influential weapon that has been added to the arsenal is the argument that there are cognitive failures. The identification of the cognitive failures, and their policy implications, is the subject of behavioural economics.”

The article goes on critique the idea that behavioral economic findings necessarily justify paternalistic regulations.  For example:

“If we really suffer from time inconsistent preferences, then resources like stickk.com allow us constrain (or impose costs) on our future-selves. The fact that many people are unwilling to create commitment contracts only serves to emphasise that although we often say we want to behave differently in the future, we are unwilling to actually constrain ourselves. So, there is no real inconsistency in our preferences; only an inconsistency in what we actually do and the stories we tell ourselves about what we wished we were doing in a world with no difficult choices or consequences. But, in cases where time inconsistent preferences actually exist, we do not need paternalists to constrain our future choices; we face ample incentive (and opportunity) to make that determination ourselves.”

or

“If we no longer use individual’s own choices to define what is or is not ‘good’, then whose do we use? The paternalist seeks to replace each individual’s judgment of the ‘good’ with their own. But, if we forgo the traditional economic notion of consumer welfare analysis, we lose any logical basis for claiming that one policy is superior to another from the consumers’ standpoint.”

The article concludes with some suggestions for future research, such as this one:

“Fourth, it might be constructive to use behavioural insights to, rather than devise new policies, learn how to better determine what consumers want, and perhaps even to help consumers better learn and ascertain their own preferences. In Norwood and Lusk (2011), we propose one such value elicitation approach, but there are other ways these concepts can be applied and implemented. Rather than seeking to discover ever new behavioural biases, perhaps we should learn how people make choices when they are warned of their biases and are offered opportunities to state their preferences in environments that minimise them. If using willingness-to-pay values in cost–benefit analysis is only credible if the values arise from well-defined preferences, it makes sense to think about designing approaches to help consumers learn and reveal those preferences.”

Should organics be allowed to use synthetics?

That is the question asked in a Washington Post article by Tamar Haspel.  The article discusses an important debate within the organic community about the role of technology and "naturalness".  

She hits on a big barrier that currently exists that hinders further adoption of organic practices by many farmers:

“A couple of months back, I talked to one of those conventional growers, Richard Wilkins. He rotates his crops (corn, wheat, soy and vegetables), plants cover crops and pays a lot of attention to the health of his soil. When I asked him if he ever considered growing organically, he said, “I’m too much of a believer in the benefits of science and technology to go organic.””

She also points out the overly romanticized concept of "natural".

“Amy Hepworth, an organic farmer in New York’s Hudson Valley, also believes in the importance of soil health and working with nature but says that science and technology, deployed judiciously, can help her with that, sometimes with fewer adverse effects than natural substances. “Natural doesn’t mean safe,” she says.”

and

“Every toxicologist or environmental scientist I’ve ever spoken with says that the idea that natural substances are inherently better for planet or people than synthetic ones is simply false.”

Ultimately, Haspel suggests a "third way", which she acknowledged is already being followed by many "conventional" farmers

“And then there are synthetics, the man-made substances used in conventional farming. “When you say pesticides and chemicals, we’re so indoctrinated that it feels like we’re saying the word poison,” says Hepworth, “but we need confidence in agriculture beyond organic. The most sustainable, responsible system is a hybrid system.” She’s working on crafting just such a system.

A hybrid system. A third way. A best-practices standard. Michael Rozyne, director of regional food distributor Red Tomato, calls it simply “something bigger.” He says that “lumping all non-organic growers into a single category, merely because they use synthetic pesticides, doesn’t do justice to the portion of those growers who are farming using many organic practices, high-level integrated pest management and all sorts of natural controls, who are paying attention to erosion, pollution, and farmworker safety.” ”

and

“It would also help disassemble what Hepworth calls the “two-party system,” in which it’s all too easy to believe that organic is good and conventional is bad. That idea has contributed to the us-and-them mentality that seems to dominate discussions about our agricultural system. “There’s been a lot of judgment of conventional growers,” says Rozyne, “as if they all farmed the same way.””

Medicare and Medicaid as justification for public health interventions

When public health care costs rise due to obesity, diabetes, smoking, and the like, it is often said that an externality exists,justifying public intervention.  The logic is that as costs to Medicare and Medicaid rise, so too must taxes to offset the higher costs.  Thus, my health care costs (if I'm enrolled in Medicare or Medicaid) impose an externality on you the taxpayer.

I've written several times in the past suggesting that this sort of argument is not particularly well founded (e.g., see here or here or here). I ran across another line of reasoning in a post about immigration and the welfare state by Don Boudreaux that suggests how slippery a slope this sort of reasoning can be.

“And, while we’re at it, doesn’t the existence of the welfare state require government also to restrict which majors college students choose? Without a welfare state, students would be more focused on finding gainful employment after they graduate. But with a welfare state, the risk of being unemployed for long periods – or of earning very low pay for most of one’s working life – as a result of majoring in the likes of “race studies” or “dance criticism” will too often be ignored by irresponsible or lazy students, who rely upon welfare-state payments to subsidize their indulgence in majors that promise no decent monetary rewards.

Where does the enhanced scope for government action end once we admit that government buys for itself, by illegitimately exercising power W, an indulgence for the exercise of otherwise illegitimate power R? What sort of distrust of the motives and knowledge of government officials leads many self-described libertarians to oppose government’s exercise of power W but approve of government’s exercise of otherwise-illegitimate power R if government insists on simultaneously exercising illegitimate power W?”

The logic used to assert that existence of public health care benefits justifies restricting (or altering) consumers' choice of foods is no different than the logic Boudreaux uses (in jest) to argue that the existence of welfare programs and public unemployment benefits justifies restricting (or altering) student's choice of college majors.

Food Demand Survey (FooDS) - June 2014

The June 2014 edition of the Food Demand Survey (FooDs) is now out.

Some highlights:

  • Willingness-to-pay for all tracked foods increased in June relative to May (and also increased relative to June 2013).  The largest dollar increase was for beef steak.
  • Consumers continue to expect higher meat prices, and their expectations of higher prices are much more pronounced today than they were a year ago.
  • There were relatively large jumps in awareness of news stories about Salmonella, E. Coli, and Mad Cow in June.
  • Concern for GMOs and antibiotics experienced the largest drops in June,

Three new ad hoc questions were added to the survey in June relating to preferences for unpasteurized or "raw" milk.  The questions were prompted by some discussions with Wendy Rahn, a professor of political science at the University of Minnesota.

Initially, respondents were told the following:

“Milk sold in most grocery stores is pasteurized, meaning it has been briefly heated to a high temperature to kill bacteria before cooling it. Some people want to drink raw or unpasteurized milk, arguing that it tastes better or offers health benefits. Many states do not allow raw milk to be sold in stores because of evidence of higher levels of bacterial contamination and the potential for food borne illness.”

Then three questions were then asked (the order was randomized across participants).

One question asked: “Suppose the next time you went to the grocery store to buy milk there were two options: pasteurized and raw, unpasteurized milk available for sale.  Both are the same price. Which would you buy?”  

The vast majority, 79.14% of participants, replied saying they would choose pasteurized milk over unpasteurized milk when both products were the same price at the grocery store. 

Participants were also asked: “Suppose the next time you went to the farmers market, a vendor offered to sell you unpasteurized, raw milk.  You can buy unpasteurized, raw milk at the farmers market or pasteurized milk at the grocery store.  Assuming both are the same price, which would you buy? Approximately 75% of participants replied they would rather purchase pasteurized milk from the grocery than the 12.51% who said they would purchase unpasteurized milk at the farmers market for the same price. Thus, changing the context of the purchase setting from grocery store to farmers market had only a very slight effect on the desirability of unpasteurized milk (increase from 9.5% o 12.5%).

Finally, we asked a public policy question.  Participants were asked: “Regardless of whether you personally are willing to buy raw, unpasteurized milk, do you believe that it should be legal to sell in grocery stores to adult consumers?”  Respondents were nearly evenly divided across response categories.  34.37% believe that the selling of raw, unpasteurized milk to adults in grocery stores should be legal, 33.68% believe it should be illegal, and 31.94% of respondents replied “I don’t know”. 

It is instructive to look at the break-down of personal preferences for purchasing unpasteurized milk vs. beliefs about whether purchases should be legal for others.  Of the 79% of consumers who said they would prefer pasteurized milk over unpasteurized milk in the grocery store, 38.6% thought unpasteurized milk sales should be illegal, 30.5% thought legal, and 30.9% didn’t know.  Thus, even among those who don’t personally prefer to buy unpasteurized milk, there is some fraction of the population (30.5%) who think it should be legal for others.