Libertarian Paternalism

I haven’t yet weighed in on the subject of libertarian paternalism, partly because I don’t have strong views on the issue.  Now Cato Unbound is doing a debate on the topic.  After reading essays pro and con, I’m still undecided, but leaning pro.  Here’s Glen Whitman speaking out against paternalism:

Choosing Among Preferences

What does “irrationality” look like? How can you prove someone is irrational, rather than simply having preferences you don’t share? After all, there is nothing per se irrational about strongly valuing the present relative to the future, or enjoying food more than you enjoy good health.

To demonstrate irrationality, behavioral economists frequently point to inconsistent behaviors that suggest inconsistent underlying preferences. For instance, people make long-term plans for saving or dieting but then, when the time comes, reverse those plans and succumb to the desire for short-term gratification. They also make different choices in different emotional states — such as saying they would never sleep with an obese person, then reversing that preference when sufficiently aroused. (Yes, an experiment by Dan Ariely has actually shown that.)

There is some dispute as to whether all such behavioral inconsistencies reveal irrationality. But let’s say they do. Even so, that fact does not license a third party to choose among competing preferences. If a person is more patient when thinking about trade-offs in the distant future, but less patient when thinking about trade-offs near the present, which level of patience is “correct”? If you would sleep with a given person when you’re in a “hot” state but not in a “cool” state, which sexual preference is “correct”? Neither theory nor evidence provides a basis for answering these questions. As some new paternalists admit, behavioral inconsistencies may indicate that “true” preferences simply don’t exist.

Nevertheless, new paternalists have not hesitated to pick and choose the “right” preferences. O’Donoghue and Rabin, for instance, define “optimal sin taxes” in terms of a person’s most patient rate of time preference. Similarly, the new paternalists favor the preferences we display in a cool state (calm and sober reflection) over those we have in a hot state (fear, anxiety, arousal, etc.), even though arguably the “hot” preferences might do a better job of revealing our true desires.

So how are the paternalists choosing, if not on the basis of hard science? It’s not hard to see: they are favoring their own preferences, which also happen to be the socially approved ones.

I like this argument.  To be fair, the libertarian paternalists don’t want to force others to adopt socially approved behavior, rather just “nudge” then in that direction.  Glen Whitman worries, however, that this could lead us down a slippery slope toward more repressive forms of paternalism:

Sound paranoid? Anti-smoking regulations followed a similar path. Once upon a time, banning smoking on airplanes seemed like the reasonable middle ground. Now that’s the (relatively) laissez-faire position, smoking bans in bars and restaurants are the middle, and full-blown smoking bans have come to pass in some cities.

Decades ago I made this argument to progressives—I argued that eventually they would start banning smoking in people’s own apartments.  And then they’d go after the fatty foods.  I still recall how the progressives used to roll their eyes at my paranoia.  Even worse, it seems to me that in his reply to Whitman, Richard Thaler validates my worst fears—the fear that libertarian paternalists will eventually use the cover of “externalities” to go beyond a gentle nudge:

The only example Whitman gives is smoking, where there certainly has been a progression of increasingly intrusive laws passed. But there are several problems with this example. First, most of the anti-smoking laws are based on externalities, not paternalism. People do not want to fly, eat, or work in smoke-filled environments. Indeed, many smokers favor such laws.

I had to read this several times, as it seems flat out wrong.  Of course I am just a lowly macroeconomist who hasn’t studied micro in decades, whereas Thaler is a microeconomist at the University of Chicago.  So I’d like your reaction.  Doesn’t this argument violate the Coase Theorem?  For example, let’s take the ban on smoking in the workplace.  Where is the externality argument?  Doesn’t the employer already have an incentive to put in place the smoking rules that minimize his productivity-adjusted wage bill?  I.e. suppose you have 100 smokers in your company, and they get $1000/year in perceived benefit from being able to smoke at work.  Also suppose there are 200 nonsmokers.  Then doesn’t the company have an incentive to ban smoking if and only if each nonsmoker averages more than $500 in disutility from second-hand smoke?  And the same applies to bars and restaurants and any other indoor private property.  The cost of second hand smoke outdoors is trivial.  So I don’t see any externality argument for the new wave of anti-smoking regulations.  And as far as public health costs, they aren’t as high as most people assume (partly because smokers don’t live as long as others) and thus the tax on cigarettes is already far higher than the expected net cost to the Treasury from people smoking and damaging their own health.

Thaler’s a smart guy so the odds are that I’ve misinterpreted Coase’s Theorem.  After all, everyone else does.  Please let me know the flaw in my reasoning, as this is the example I always use to explain Coase’s Theorem to my students.  I don’t want to continue committing economic malpractice if the argument is flawed.

[Update, 4/12/10:  Richard Thaler emailed me and indicated that he didn’t necessarily mean to imply that the externality arguments were justified,  but rather that externalities rather than paternalism was the justification for this legislation, and hence that it did not provide a good example of the slippery slope argument.  That’s a fair point.  In that case my argument is not directed at Thaler, but rather those who implemented the legislation using bogus externality arguments.]

And yet, despite everything I’ve said, I still am not really convinced that libertarian paternalism is such a bad idea.  Thaler makes the following argument, which seems to make sense to me:

In short, the risk of the slippery slope appears to be a figment of Professor Whitman’s imagination, and clear evidence of his bathmophobia. To be fair to him, this phobia is hardly unique to him and Professor Rizzo. Slope-mongering is a well-worn political tool used by all sides in the political debate to debunk any idea they oppose. For example, when the proposal was made to replace the draft with an all-volunteer army, the opponents said this would inevitably lead to all kinds of disastrous consequences because we were turning our military into a band of mercenaries. The argument is perfectly versatile. If we allow (blacks, women, gays. . . .) into the military then (fill in the awful but inevitable consequence here). If we allow free speech then we will give voice to the next Hitler. “Allowing a partial privatization of Social Security will destroy the moral fabric of our society.” Never mind that Sweden did it a decade ago. You get the idea.

Instead of slope-mongering we should evaluate proposals on their merits. (We devote a chapter of Nudge to an evaluation of the choice architecture used in Sweden’s social security experience.) Helping people make better choices, as judged by themselves, is really not a controversial goal, is it?

A couple reactions:

1.  If we had to have a Singapore-style benevolent dictator we could do much worse than Richard Thaler.

2.  The real test of libertarian paternalism will come when we see how often it is advocated as a way of softening hard paternalism.  We all know about Thaler and Sunstein’s advocacy of ideas such as making membership in a pension plan the default option for new employees, and requiring affirmative steps from those who wish to opt out.  (I lost a lot of money by not joining a 403b back in 1981, when I had the chance.  If only their idea had been around back then.)  What I will be watching for is to see if there are an equal number of proposals to move from hard paternalism to libertarian paternalism, as there are to move from laissez-faire to libertarian paternalism.  Thus do people like Thaler and Sunstein advocate replacing the requirement that the FDA approve all new drugs, with a mere stamp of approval, which consumers are free to disregard if they wish?  It would give me much more confidence if they did.

In the end I think a mass movement of libertarian paternalism might actually be a very good thing.  Suppose it starts getting implemented in one area after another.  I know it seems unlikely that a mass movement could ever form around such a bland and innocuous idea, but let’s suppose it did.  It seems to me that if people started viewing libertarian paternalism as the norm, they might start asking hard questions about the many types of hard paternalism that do great damage to our society.  Starting with our legal drug laws, and then on to our illegal drug laws.  In my view if we got a few nudges toward socially approved behavior, that were easily circumvented by those who wish to go their own way, the costs would be trivial compared to the benefits of people in great pain getting adequate pain medication, and also the benefit of 400,000 innocent people being freed from prison.  So by all means let’s bring on libertarian paternalism.  It is far more libertarian than it is paternalist.  But don’t stop with pension plans; apply it everywhere.

First I plan to see Sweetgrass.  Then I’ll take direct action.  If you see a guy in front of the White House with a sign saying “We Demand the Goverment Begin Gently Nudging Us,” you’ll know it’s me.  Now we just need to find our William Jennings Bryan.

HT:  Will Wilkinson

BTW, the oxymoronic term ‘libertarian paternalism’ reminds me of the similarly ungainly ‘liberaltarianism.’  If we are going to make progress in that direction, it would help if libertarians absorbed the ideas of David Boaz, which are discussed in this Will Wilkinson post.  I don’t know what advice I’d give liberals—maybe spend three years studying under Gary Becker.


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41 Responses to “Libertarian Paternalism”

  1. Gravatar of Thorfinn Thorfinn
    7. April 2010 at 19:27

    The problem with libertarian paternalists is that they are not paternalist enough. They are perfectly willing to prescribe how forced savings plans ought to be run; yet they would never recommend one themselves.

    I am also struck by the provincialism of thought here. Is fighting obesity or urinal-wetting our biggest problem? Have we figured out everything else? It strikes me as a little insane to spend so much time figuring out how to optimize, say, Medicare Part D; and so little wondering if it’s a good idea to begin with.

  2. Gravatar of Colorado Colorado
    7. April 2010 at 20:40

    ‘liberaltarianism’
    I recently read the phrase “fusion liberal” for a Democrat with new libertarian leanings. It does sound hip enough to stick. (Alert, attempt to hijack the thread.) What one central tenant would you suggest a Dem adopt/recognize to lead him to a libertarian philosophy?

  3. Gravatar of Mike Sandifer Mike Sandifer
    7. April 2010 at 20:49

    Scott,

    To quote a section:

    “For example, let’s take the ban on smoking in the workplace. Where is the externality argument? Doesn’t the employer already have an incentive to put in place the smoking rules that minimize his productivity-adjusted wage bill? I.e. suppose you have 100 smokers in your company, and they get $1000/year in perceived benefit from being able to smoke at work. Also suppose there are 200 nonsmokers. Then doesn’t the company have an incentive to ban smoking if and only if each nonsmoker averages more than $500 in disutility from second-hand smoke? And the same applies to bars and restaurants and any other indoor private property. The cost of second hand smoke outdoors is trivial.”

    With regard to employer incentives to limit smoking to minimize his productivity-adjusted wage bill, financial incentives are not net incentives. What if the boss smokes? What if the majority of employees smoke? What if the boss has trouble making tough decisions, but does well enough overall to keep his/her job? What if the boss makes very basic math mistakes, as so many do?

    And when it comes to outdoor second-hand smoke exposure, maybe your earlier years were more innocent than mine. I’ve certainly gotten contact highs at more than one outdoor concert.

  4. Gravatar of Colorado Colorado
    7. April 2010 at 20:50

    When you find that ‘central tenant’, send him my way. I’m a landlord.

  5. Gravatar of WDozier WDozier
    7. April 2010 at 22:09

    Mr. Sumner:

    You ask for the flaw in your reasoning referring to your analysis of the third block quotation.

    I suggest transaction costs are much higher in the workplace than you seem to assume. No worker wants to be the complainer or else face social (or promotional) costs later down the road. For example, if the boss is smoking, perhaps the workers value his approval more than they do a smoke-free environment when faced with those two choices.

  6. Gravatar of Doc Merlin Doc Merlin
    7. April 2010 at 22:29

    I don’t like libertarian paternalism because it still requires coercion to work. For example you have to fine/imprison the employers who don’t make the pension plans a default option. All “libertarian paternalism” does is move the annoyance of regulation from the voter to the employer. Libertarian paternalism is still coercive. It just does its coercion in a way with fewer people who will complain, by hiding the coercion from them.

    In addition, I think it will be used as a way to try to slow the coming libertarian advance.

  7. Gravatar of scott sumner scott sumner
    8. April 2010 at 04:11

    Thorfinn, I agree. I was wondering if my jokes at the end would seem silly, or disrespectful. But I have a hard time taking all of this seriously. I came of age during the great battle between communism and capitalism, and it still seems to me that there are much bigger problems out there to worry about then those which can be addressed through libertarian paternalism. But I do stand by my comments about moving from hard paternalism to libertarian paternalism in areas like drugs–i think that would be a huge gain to society.

    Colorado, My answer would be mass privatization of government services (including school choice, etc) The Nordic countries are way ahead of us here, and it doesn’t violate any core liberal values.

    Mike, Sure, a boss may be bad at math, but that’s not a market failure argument, it’s not an externality argument. In that case a boss is equally likely to ban smoking where it should be allowed. All your other points (like what if the boss smokes) are already accounted for in my numerical example.

    WDozier; You said;

    “For example, if the boss is smoking, perhaps the workers value his approval more than they do a smoke-free environment when faced with those two choices.”

    See my previous response. Note that if the employees are afraid to complain to the boss because the boss is smoking, then it is socially optimal to allow smoking. As that would imply that the boss’s gain from smoking (in monetary terms) exceeds the discomfort of the employees. So there is no market failure. And there are certainly no transactions cost problems here, as the boss makes the decision for the entire firm–he’s like a dictator. Indeed within the firm he plays exactly the same role as the government does in the outdoor air pollution problem.

    I think people are confusing uncertainty with transactions costs. There are uncertainties about everything in business, including future revenues and costs. But those uncertainties aren’t market failures calling for regulation. Yes, a boss might underestimate how much smoke annoys non-smokers. But he might also overestimate it. Bosses tend to be rich, and rich people are much less likely to smoke. So if there are mistakes being made, they are probably in the direction of too many firms banning smoking in the workplace. So if anything, the law should forbid firms to ban smoking, not require it. But I think the best policy is laissez-faire.

    Doc Merlin, You may be right, but your argument doesn’t address my final “lesser of evils” argument.

  8. Gravatar of StatsGuy StatsGuy
    8. April 2010 at 05:57

    “Doesn’t this argument violate the Coase Theorem?”

    No, it doesn’t. “The theorem states that when trade in an externality is possible and there are no transaction costs, bargaining will lead to an efficient outcome regardless of the initial allocation of property rights.”

    Is trade in the externality possible? (Can I pay for clean air? Or, more exactly, if I wanted clean air at a bar, how many people would I need to pay to get it, and how would I enforce the contract?) Are transaction costs zero? Is competition sufficiently available to permit the exit option to be meaningful? Finally – why aren’t the laws themselves a legitimate outcome of the Coase Theorem?

    “Thus do people like Thaler and Sunstein advocate replacing the requirement that the FDA approve all new drugs, with a mere stamp of approval, which consumers are free to disregard if they wish?”

    There’s a slight misunderstanding of how FDA regulation works. FDA has various degrees of approval. FDA often approves drugs for indications – but physicians today are often able to prescribe drug off label (for non-approved indications). They rarely do, and consumers rarely use such drugs – although there are exceptions. Much of the regulation on drugs (and devices) is NOT how a drug can be used, but how it can be _marketed_. Among other things, an FDA stamp of approval carries so much weight in a field that is overwhelmed by technical uncertainty and legal peril and patient anxiety that most doctors and drug companies are very careful going around an official stamp of approval. Many drug companies find it not worth manufacturing the drug (size of market too small, liability too large). This is especially true because most insurance companies use FDA indications/approval as a mechanism to determine what is covered, and coverage determines what is prescribed/bought.

    So while I’m all in favor of the “stamp of approval” approach, you may observe that in many (not all, but many) cases, the end result is similar to what we have today. Indeed, that’s what the Coase Theorem would predict. :)

  9. Gravatar of Indy Indy
    8. April 2010 at 06:59

    The American military is probably a good example of a combination of a “Libertarian Paternalist” and a “Command-and-Control Socialism” regime. Soldiers, of course, are ordered to serve the needs and accomplish the missions of the institution, but (depending on rank and the circumstances) they are also given a certain amount of freedom – sometimes a quite remarkable amount – and the responsibility to manage their own affairs as they see fit.

    The conventional wisdom is that practice at personal-related management builds the self-reliant character traits and skills necessary to assume the rigors of leadership and authority in professional-related management. Obedient automatons which depend on the system to run everything in their lives simply do not make good first-line and intermediate leaders.

    So the Army will give Soldiers a certain private sphere where they can do what they want. Though collective punishment is not uncommon – it is frowned upon as lazy leadership. Soldiers who screw up are generally dealt with individually.

    However, if a secular trend of personal failures of discipline or self-control begins to emerge, for example with obesity or drunkenness or injuries deriving from reckless recreations, then the military will, consistent with its nature, begin to “escalate” its tactics. First there will be “awareness” campaigns, and encouragement to peer pressure, then “leaders training”, then “disciplinary guidance” that instructs leaders to be firmer and harsher with each infraction of a particular type.

    If none of that works, then the freedom is increasingly narrowed, if not altogether taken away. The principle is “You all get your freedom so long as you all can handle it. If enough of you screw up then it’s more trouble than it’s worth.”

    It’s fundamentally a principle of dictatorial reasonableness – you leave the Soldiers as free as possible *so long as* it doesn’t cause too much trouble or diminish overall effectiveness.

    But, in this view, Freedom is merely a means that sometimes helps create better leaders, not an end or good in itself that should be preserved on principle in accordance to the organizational purpose and charter and view of the rights of individuals or respectful of their status as free men. And without some ideological commitment “pushing back” against practical restrictions, the tendency of the pragmatic and incident-averse military is to over-restrict.

    Of course, that’s entirely appropriate and reasonable in any military, especially a voluntary one. But my problem with “Libertarian Paternalism” is that I detect the whiff of that kind of thinking as it relates to normal civilians in an open society.

    That type of thinking is this: “Freedom, not as a right or good in itself, but essentially as a license – something you get so long as you can prove handle it, and only justified at all if one can demonstrate some immediate practical benefit we achieve by generously dolling it out, as grace, to the populace.”

    That attitude towards liberty is, in my view, the birth defect of LP. It is the original rot that will selectively target the L and leave us only with P – which is not a government based on the limited and consensual cooperation of free men, but the nanny state. It’s not paranoia or delusional phobia or hysterical slipper-slope-ism to see this – it’s a reasonable conclusion based on a fair observation of human nature and comparisons of the trends that emerged earlier in other similar contemporary societies.

  10. Gravatar of Blackadder Blackadder
    8. April 2010 at 07:09

    The real test of libertarian paternalism will come when we see how often it is advocated as a way of softening hard paternalism.

    Having read Nudge, I would say that Sunstein and Thaler pass this test. On education, medical malpractice, safety laws, and marriage, Sunstein and Thaler advocate a more libertarian policy than the status quo. Not only that, but a lot of the stuff in Nudge doesn’t have to do with government at all, but is about stuff like how you can lose weight, make wiser investments, etc.

    If you see a guy in front of the White House with a sign saying “We Demand the Goverment Begin Gently Nudging Us,” you’ll know it’s me. Now we just need to find our William Jennings Bryan.

    This reminds me of the joke about the chants at the Fabian rally: “What do we want?” “Gradual change!” “When do we want it?” “In due course!”

  11. Gravatar of Philo Philo
    8. April 2010 at 09:12

    Your post tends to run together two different issues. One is whether libertarian paternalism is a good, or valid, idea. The other concerns the *bona fides* of Thaler, Sunstein, *et al*: are they really just advocating libertarian paternalism, or do they have a sinister hidden agenda of promoting hard paternalism?

    As your comments indicate, libertarian paternalism in itself looks OK, though of only marginal importance.

  12. Gravatar of Mike Sandifer Mike Sandifer
    8. April 2010 at 10:13

    Scott, you replied:

    “Mike, Sure, a boss may be bad at math, but that’s not a market failure argument, it’s not an externality argument. In that case a boss is equally likely to ban smoking where it should be allowed. All your other points (like what if the boss smokes) are already accounted for in my numerical example.”

    I might be too ignorant or stupid to follow your point. I don’t see such cost/benefit analyses occurring in the real world, even on an implicit level.

    Also, I may be biased, but I ultimately see the macroeconomy in terms of net reinforcement, as opposed to monetary measures, such as GDP. I see some of the the 80% that are dynamically risk averse more often making decisions to avoid losses, rather facilitate gains(versus other risk temperaments). This is not good for overall happiness of society, when the less fortunate(net reinforcement) feel they have to expose themselves to carcinogens just to earn a living.

    This can certainly be the result of rate of intake-based temporal discounting of future versus present losses. This tendency can usually be psychotropically meliorated, such that these calculations begin to shift in favor of smoke-free environments(though there are biases against such treatments). More net reinforcement sometimes does mean less overall productivity(though often doesn’t), but again, my focus is on net reinforcement. So, maybe I think of externalities differently.

    That doesn’t mean that I think there are good macro metrics for net reinforcement, or that I know anything about macroeconomics. I am probably the least sophisticated of your commenters on the latter. But, I do know that what is financially optimal for a single firm is certainly not necessarily so for the macroeconomy, and hence government regulation is needed in the case of smoking in public. Since higher levels of net reinforcement will increase productivity (even in GDP) overall, I think I have more than a normative argument.

    Of course, there is also the normative problem of tyrannical majorities, or in this case, tyrannical profits.

    Anyway, I agree with the rest of your post, which is more important.

  13. Gravatar of Overcoming Bias : Paternalism Is Hard Overcoming Bias : Paternalism Is Hard
    8. April 2010 at 10:31

    [...] Arnold Kling agrees, as does Scott Sumner: [...]

  14. Gravatar of Mike Sandifer Mike Sandifer
    8. April 2010 at 11:32

    I should qualify that greater net reinforcement leading to greater GDP by mentioning that it would only be so in some economies, under some specific conditions.

  15. Gravatar of DWAnderson DWAnderson
    8. April 2010 at 13:36

    My first reaction to libertarian paternalism, was that I would take more nudges in exchange for eliminating hard requirements any time. To the extent there is skepticism it is rooted in concerns that many hard requriements would still remain, but I say take Sunstein and Thaler at their word.

    Sunstain has made the point in s U of C podcast that that “libertarian paternalism” is just a catchier name suggested by their publisher for something less oxymoronic like “choice architecture.” He then went on to make the wholly persuasive point that if choice architecture makes a difference AND IS INEVITABLE, why not structure the choices in an attempt to do good. It seems to me the only reason not to do this would be if we thought those setting up the choices/nudges would systematically produce worse results for people that randomly constructed choices. I am skeptical of government, but not THAT skeptical!

  16. Gravatar of Mark A. Sadowski Mark A. Sadowski
    8. April 2010 at 16:31

    Svott wrote:
    “For example, let’s take the ban on smoking in the workplace.”

    I’d rather examine the case of a pub.

    The Coasean justification for banning smoking is the transactions costs. In practice, it would be almost impossible for smokers to agree a price with all pub-goers.
    Imagine walking round a crowded pub on a Saturday night haggling with everyone?

    Suppose the pub-goers had a tradeable right to clean air. They probably would value it much more than it was truly worth to them. Some people would therefore demand huge payment from smokers. They would, in effect, prevent the trade and stop people from smoking.

    In practice, therefore, giving pub-goers a tradable right to clean air would rule out smoking in almost all cases. Banning smoking results in what would end up being the Coasean equilibrium solution anyway.

  17. Gravatar of Doc Merlin Doc Merlin
    8. April 2010 at 18:56

    I didn’t address your “lesser of two evils” argument, Scott, because I don’t disagree with it. If the choice is between paternalism and libertarian paternalism, i’ll take libertarian paternalism any day.

    Anyway, I find its far better to take an extreme view if you wish to shift the public discourse in the future. A “lesser of two evils” compromise position is a bad, weak position to start from but not a horrible place to end up, imo.

  18. Gravatar of Doc Merlin Doc Merlin
    8. April 2010 at 19:04

    @ Mark A. Sadowski
    No, you are not understanding the Coase Theorum. Blocking a transaction is imposing a transaction cost. The “no transaction cost” part of the theorum allows people to move away from the pollution or polluters to move away from the adversely affected, whichever is most efficient. Banning smoking in bars straight up is imposing a transaction cost on the smokers.

  19. Gravatar of Doc Merlin Doc Merlin
    8. April 2010 at 19:07

    “My first reaction to libertarian paternalism, was that I would take more nudges in exchange for eliminating hard requirements any time. To the extent there is skepticism it is rooted in concerns that many hard requriements would still remain, but I say take Sunstein and Thaler at their word.”

    My fear is that it moves the hard requirements from voters to corps, the hard requirements are still there, they are just harder to spot. Its preferable than hard requirements on everyone, but I still don’t like it.

  20. Gravatar of Mario Mario
    8. April 2010 at 19:20

    I generally favor libertarian paternalism as a general concept for public policy, but I think we have to be careful about how it’s applied. For instance, wannabe nudgers can only go after fatty foods as producing society-wide externalities because the government chose to absorb a portion of health care costs. Absent that, the consumption of fatty foods would be a purely personal decision. So it’s a little misleading to talk about a slippery slope, when in reality it is a well-coordinated, and highly paternalistic, two-step process.

    It’s similar to how progressives absorb private industry by first using public money to back high-risk loans, then complain that we’ve “socialized the losses, but privatized the gains” and take over the industry as a whole. It would never fly with the public if proposed as conceived, so they mask it as two separate and perfectly reasonably moves — and even manage to get corporate support for step 1.

  21. Gravatar of Mark A. Sadowski Mark A. Sadowski
    8. April 2010 at 20:18

    @Doc Merlin,
    In the “Nature of the Firm” Ronald Coase noted that there are inconveniences of market transactions, and if transactions are not governed by the price system there has to be an organization. The object of an business/government organization is to reproduce the conditions of a competitive market for the factors of production within the organization at a lower cost than the actual market.

    http://www.scribd.com/doc/2530438/COASEThe-Nature-of-the-Firm

    The nature of the hypothetical pub market for clean air results in high transaction costs. The government merely dictates the optimum solution at a lower cost.

  22. Gravatar of Mark A. Sadowski Mark A. Sadowski
    8. April 2010 at 20:27

    @Doc Merlin,
    In the “Nature of the Firm” Ronald Coase noted that there are inconveniences of market transactions, and if transactions are not governed by the price system there has to be an organization. The object of an business/government organization is to reproduce the conditions of a competitive market for the factors of production within the organization at a lower cost than the actual market.

    The nature of the hypothetical pub market for clean air results in high transaction costs. The government merely dictates the optimum solution at a lower cost.

  23. Gravatar of Bonnie Bonnie
    8. April 2010 at 21:09

    Thomas Jefferson said (Notes on Virginia Query 17):

    “Was the government to prescribe to us our medicine and diet, our bodies would be in such keeping as our souls are now. Thus in France the emetic was once forbidden as a medicine, and the potatoe as an article of food. Government is just as infallible too when it fixes systems in physics. Galileo was sent to the inquisition for affirming that the earth was a sphere: the government had declared it to be as flat as a trencher, and Galileo was obliged to abjure his error. This error however at length prevailed, the earth became a globe, and Descartes declared it was whirled round its axis by a vorteo.

    “The government in which he lived was wise enough to see that this was no question of civil jurisdiction, or we should all have been involved by authority in vortices. In fact, the vortices have been exploded, and the Newtonian principle of gravitation is now more firmly established, on the basis of reason, than it would be were the government to step in, and to make it an article of necessary faith. Reason and experiment have been indulged, and error has fled before them.

    “It is error alone which needs the support of government. Truth can stand by itself. Subject opinion to coercion: whom will you make your inquisitors? Fallible men; men governed by bad passions, by private as well as public reasons. And why subject it to coercion? To produce uniformity. But is uniformity of opinion desireable? No more than of face and stature. Introduce the bed of Procrustes then, and as there is danger that the large men may beat the small, make us all of a size, by lopping the former and stretching the latter.

    “But is the spirit of the people an infallible, a permanent reliance? Is it government? Is this the kind of protection we receive in return for the rights we give up? Besides, the spirit of the times may alter, will alter. Our rulers will become corrupt, our people careless. A single zealot may commence persecutor, and better men be his victims. It can never be too often repeated, that the time for fixing every essential right on a legal basis is while our rulers are honest, and ourselves united. From the conclusion of this war we shall be going down hill. It will not then be necessary to resort every moment to the people for support. They will be forgotten, therefore, and their rights disregarded. They will forget themselves, but in the sole faculty of making money, and will never think of uniting to effect a due respect for their rights. The shackles, therefore, which shall not be knocked off at the conclusion of this war, will remain on us long, will be made heavier and heavier, till our rights shall revive or expire in a convulsion.”

    I certainly hope you are not asking if now is the time to decide that our rights will expire in a convulsion rather than revive. Economic study is merely a hobby for me, and so I don’t understand much more than layman’s terms. But I do understand history and that the power to coerce is a double edged sword. We might get some “good” things from it but also a lot of bad that were never intended to be a part of the American experience.

    I guess it’s all a matter of making a choice of whether we are a self-governing society or if we are not. I’m not ready to commit to the notion that freedom, liberty, and natural rights are a failure; and that our Constitution and the whole American experience is a failure from which we need government which is just as fallible (and probably even more corrupt than the average citizen) to rescue us by making our choices for us. In that there is no rescue. It’s been tried by various powers throughout the ages with varying amounts of failure. That failure was nearly always at the expense of the citizen and not the tyrant and I don’t want it.

  24. Gravatar of Mike Mike
    8. April 2010 at 22:09

    I for one am not buying it. There’s no way Sumner could fall for such flimsy straw men…I’m the smartest person I know and I would never pay any attention to someone so facile as to actually believe the fake argument Sumner puts forth here.

  25. Gravatar of Nudging Towards What? «  Modeled Behavior Nudging Towards What? «  Modeled Behavior
    9. April 2010 at 03:25

    [...] Scott Sumner argues that, no smoking is not an externality: Doesn’t this argument violate the Coase Theorem? For example, let’s take the ban on smoking in the workplace. Where is the externality argument? Doesn’t the employer already have an incentive to put in place the smoking rules that minimize his productivity-adjusted wage bill? [...]

  26. Gravatar of Winton Bates Winton Bates
    9. April 2010 at 04:27

    Glen Whitman makes the good point that policy-makers often have problems in self-control. We cannot be sure that the direction in which they will nudge us will be in our own best interests.
    Robert Sugden has a related argument against paternalism that seems to me to be relevant. The people who argue that it is a good idea for other people to be nudged away from foolish behaviour seem to imagine that whoever designs the regulations will share their own sense of what is foolish, rather than belonging to the ‘party of fools’. Sugden’s argument is more fully discussed here on my blog: http://wintonbates.blogspot.com/2010/04/why-should-we-view-individual-rights-as.html

  27. Gravatar of StatsGuy StatsGuy
    9. April 2010 at 04:42

    Mark –

    “The nature of the hypothetical pub market for clean air results in high transaction costs. The government merely dictates the optimum solution at a lower cost.”

    Not that I’m against environmental regulation, but the optimum solution depends on the definition of optimum. Many models use total/average utility, which is of course somewhat arbitrary and has little bearing on ‘justice’. Assuming utility can even be measured, or even exists as an objective non-social phenomena for anything except crude needs. And then there’s the issue of applying a 5-8% per annum real discount rate to a public good, on the presumption that long term planetary losses will be made up by improving human utility by investing money in the market at the current rate (even though they continued to use fixed 5% rates when real productivity growth – as if GDP is a good measure of human utility – is much lower).

    The Coase Theorem – if the many libertarians who cite it actually read it – suggests that with sufficiently low transaction costs, ALL systems of organizing production/distribution are essentially equal (except in distributional outcomes). Yet that’s not the case, which Coase new, and so that means the optimal system must depend on the empirical circumstances.

    The Coase question is the relative efficiency of different forms of “contracting”. But there are non-Coasian questions in public relations – such as intergenerational equity (e.g. that discount rate doesn’t take into account the opinions of future generations), socially constructed values (the definition of utility is affected by actions – if you create constitutional rights, people may learn to care about them), fairness (utility distribution does matter), systemic stability…

    Which is not to understate the immense importance of Coase’s insights.

  28. Gravatar of scott sumner scott sumner
    9. April 2010 at 05:10

    Statsguy, You said;

    “Is trade in the externality possible? (Can I pay for clean air? Or, more exactly, if I wanted clean air at a bar, how many people would I need to pay to get it, and how would I enforce the contract?) Are transaction costs zero? Is competition sufficiently available to permit the exit option to be meaningful? Finally – why aren’t the laws themselves a legitimate outcome of the Coase Theorem?”

    This doesn’t address my argument at all. The owner of the firm has an incentive to adopt the optimal smoking policy. There is simply no externality here at all. Any disutility from smoking is already reflected in the supply of labor facing his firm. To argue otherwise is like arguing that firms should be required to offer health insurance, because the employee gains from the insurance not the employer. But economists agree that there is no externality for health insurance, and that employers have an incentive to offer a total compensation package in the most efficient form possible. If that’s true of health insurance it is also true of clean air.

    Statsguy, You said;

    “So while I’m all in favor of the “stamp of approval” approach, you may observe that in many (not all, but many) cases, the end result is similar to what we have today. Indeed, that’s what the Coase Theorem would predict.”

    If I have severe pain, can I walk into a drug store and buy heroin or oxycontin w/o a doctor’s prescription? No, indeed I can’t buy heroin even with a prescription. So no, I don’t think it would be anything like our current system.

    Indy, I stand by my argument that a LP society would be far freer than our current society. So for the paternalist the slippery slope goes the other way–it opens the Panadora’s Box of giving Americans freedom where they currently don’t have it.

    Blackadder, Thanks for that info. That makes me much more enthusiastic about LP. I still think it is far more libertarian that paternalist.

    Philo, I don’t see those ideas as unrelated. I am a pragmatist, so I think the value of an idea depends in part on how it will be implemented. LP is a single policy, but rather a fuzzy set of policies. It all depends on which of the nearly infinite number of LP policies would actually be implemented.

    Mark Sandifer, You said;

    “Also, I may be biased, but I ultimately see the macroeconomy in terms of net reinforcement, as opposed to monetary measures, such as GDP. I see some of the the 80% that are dynamically risk averse more often making decisions to avoid losses, rather facilitate gains(versus other risk temperaments). This is not good for overall happiness of society, when the less fortunate(net reinforcement) feel they have to expose themselves to carcinogens just to earn a living.”

    After read these replies I am now 100% sure that I am right. People don’t seem to understand the Coase Theorem. It makes no difference whether the boss smokes or not, or whether the boss is risk averse. What matters is utility maximization. There is no externality here, as a smoke-filled environment is a influece on employee utility, and thus the supply of labor facing the firm. Your argumet would be like saying that is a market failure in providing health insurance to employees just because the boss don’t care about the employees’ health as much as they themselves care about their own health. Economists agree there is no externality in the health insurance case, so why is there one here?

    Looks like I will have to do a post explaining this issue.

    And suppose you had a non-smoking boss who hated second hand smoke but a workplace full of smokers. By your logic the government should pass a law saying the boss is not allowed to ban smoking, after all, if they don’t the boss will impose his uptight standards on the other employees.

    DWAnderson, That’s a good point.

    Mark Sadowski, I think all economists should agree that the Coase Theorem applies to a pub, as the pub owner has the incentive to adopt the smoking policy that maximizes his profits. That will of course be the one that produces the greatest demand for pub services. The argument for regulation is even weaker when you move from a monopolistic pub industry to a competitive pub industry. In that case pubs will have an incentive to cater to different audiences, assuming there are people who strongly desire non-smoking pubs.

    I don’t understand your point about trading smoking rights within the pub. There is simply no externality issue here, because the workplace and pub are both private property, owned by a single entity. The Coase Theorem only applies when there is a commonly-owned space, not inside of a privately-owned building.

    Look, GM has maybe 100,000 employees. It is costly for them to get together and negotiate about ANYTHING, not just smoking. So why say there is a market failure in smoking but not in whether the firm plans to offer its employees free dental benefits? The answer is that GM is privately-owned, hence there is no externality unless their actions hurt someone who is not a employee or customer.

    Bonnie, Those are good points, but I can see them being used both in favor and against libertarian paternalism. If you start with something like the FDA, then LP seems to rely on Jefferson’s argument that you should use persuasion, not force. If you start from laissez-faire, it seems the reverse.

    Mike, I think your joke went over my head.

  29. Gravatar of scott sumner scott sumner
    9. April 2010 at 05:27

    Winton, The problem with that argument is that the government already has the power, and they already abuse the power. LP would take power away from the government, they would have much less power to force people to do what they want them to do.

    I’ve argued many times that the public is (rightfully) pragmatic. They will never rally around abstract ideas like “freedom.” They want what works. In any cause, the term ‘freedom’ is hopelessly vague. Consider the carbon problem. Is “freedom” being free to emit carbon, or being free from having to live in an atmosphere with too much carbon? I don’t know the answer, and I doubt anyone else does either. I believe issues must be examined pragmatically, although for convenience you can set up broad rules in certain areas of life (I favor free political, artistic and commercial speech), but nothing as broad as “freedom.”

    Statsguy. Before Coase, people thought in terms of villains and victims. When a rancher’s sheep strayed over and ate the farmers crops, the rancher was viewed as the villain and the farmer was seen as the victim. Coase showed that this is wrong, that the farmer is equally to blame for the harm done (if harm indeed has been done.) Smokers and non-smoking breathers are equally to blame for the problem of second-hand smoke. People seem to have some sort of knee-jerk reaction that the smokers are the villains, imposing harm on the rest of us. There are certainly areas where we want to restrict smoking, but in private settings there is no externality, so no need for government regulation. The government should set policies regulating smoking in government-owned property, and the private sector should regulate smoking in privately owned property. The private sector already has an incentive to do so in a way that maximizes the combined utility of bosses, employees and customers. Thus there is no externality problem requiring government regulation.

    (The only exception is if second hand smoke drifts across property lines in significant amounts–but in my view this isn’t a big problem.)

  30. Gravatar of StatsGuy StatsGuy
    9. April 2010 at 07:48

    ssumner:

    “If I have severe pain, can I walk into a drug store and buy heroin or oxycontin w/o a doctor’s prescription? No, indeed I can’t buy heroin even with a prescription. So no, I don’t think it would be anything like our current system.”

    Heroin??? The War on Drugs has almost nothing to do with the FDA! Heroin is mostly “regulated” by the legislature. The “War on Drugs” is entirely a Reagan creation – and Reagan hated the FDA.

    The reality of FDA regulation often gets lost in knee-jerk anti-FDA sentiments.

    Perhaps a better example of the FDA drug regulation process would be Vioxx, a Cox-2 inhibitor. One might want to consider how – exactly – the FDA is overriding the “natural” outcome that would otherwise occur in a Coasian world.

    http://en.wikipedia.org/wiki/Rofecoxib

    “In 2005, advisory panels in both the U.S. and Canada encouraged the return of rofecoxib to the market, stating that rofecoxib’s benefits outweighed the risks for some patients. The FDA advisory panel voted 17-15 to allow the drug to return to the market despite being found to increase heart risk. The vote in Canada was 12-1, and the Canadian panel noted that the cardiovascular risks from rofecoxib seemed to be no worse than those from ibuprofen[6] — though the panel recommended that further study was needed for all NSAIDs to fully understand their risk profiles. Notwithstanding these recommendations, Merck has not returned rofecoxib to the market.”

    >>> Vioxx was _voluntarily_ withdrawn, and Merck _voluntarily_ elected not to return the product to market. <<<

    The "voluntary" nature was contingent mostly on risk of private litigation, and the foundation of that litigation largely depended on whether or not Merck fabricated data or deliberately delayed release of incriminating data.

    The only thing the FDA has done is force upon companies rigorous information discovery requirements, which turned up new information on an entire class of drugs (NSAIDs) which for decades had been deemed safe by the private and public health establishment. Is that a bad outcome?

    And, BTW, in spite of fears of overzealous litigation, it seems the market ultimately found a reasonable Coasian middle ground…

    "Merck hired a firm in 2005, Debevoise & Plimpton, to investigate Vioxx study results and communications conducted by Merck.[citation needed] Through the report, it was found that Merck's senior management acted in good faith, and that the confusion over the clinical safety of Vioxx was due to the sales team's overzealous behavior. The report that was filed gave a timeline of the events surrounding Vioxx and showed that Merck intended to operate honestly throughout the process. Any mistakes that were made regarding the mishandling of clinical trial results and withholding of information was the result of oversight, not malicious behavior. The Martin Report did conclude that the Merck's marketing team exaggerated the safety of Vioxx and replaced truthful information with sales tactics.[citation needed] The report was published in February 2006, and Merck was satisfied with the findings of the report and promised to consider the recommendations contained in the Matin Report."

    The court awards seem to reflect this middle ground.

    So where are the villains here? Where is the massive FDA failure, or the overweening bureaucratic paternalism forcing companies to not offer products that consumers desperately want?

    "War on Drugs" and FDA do not even belong in the same sentence.

  31. Gravatar of StatsGuy StatsGuy
    9. April 2010 at 08:07

    ssumner:

    “The private sector already has an incentive to do so in a way that maximizes the combined utility of bosses, employees and customers. Thus there is no externality problem requiring government regulation.”

    Incentives aren’t the issue. Coase only says the private sector will fix it subject to above conditions (essentially, free contracting, no transaction costs, etc.). Those conditions don’t exist.

    As to the question of whether these contracting failures justify govt. involvement – that’s empirical. I happen to think it isn’t worth government intervention in smoking in bars, but then, I don’t really care.

    However, there is no “violation of the Coase Theorem” here.

    ssumner:

    “Coase showed that this is wrong, that the farmer is equally to blame for the harm done (if harm indeed has been done.)”

    Correct me if I’m wrong here, but Coase doesn’t show the farmer is equally to blame. He shows that in free contracting/no transaction costs, it doesn’t matter who gets blamed, the socially “optimal” outcome will result.

    In practical law, however, transaction costs are real – so one of the primary underlying principles of tort law is that blame should be assigned to individuals who are in the best position to address potential harm.

    Thus, swimming pool manufacturers might be held liable for gross negligence for failing to fix (and hiding of evidence about) a repeated problem that causes child deaths by disembowlment (even though they may have known of the problem for years). (Remember John Edwards’ claim to fame?)

    The libertarian counterpoint is caveat emptor, but have you ever considered that regulation itself might be a Coasian optimal solution in situations with information asymmetry? When consumers know they have no recourse and poor information, many simply choose not to participate in the market.

  32. Gravatar of StatsGuy StatsGuy
    9. April 2010 at 08:19

    ssumner:

    “But economists agree that there is no externality for health insurance,”

    First, remember that I oppose the current health reform legislation.

    Second, I don’t see that “economists agree” on the statement above. For example:

    http://healthcare-economist.com/2007/06/13/vaccination-externalities/

    “Externalities are a basic concept in the economics of health care. Yet actual ACIP policies do not pay significant attention to externality issues.”

    Please forgive this string of overly-detailed comments, but I stumble on broad generalizations.

  33. Gravatar of Doc Merlin Doc Merlin
    9. April 2010 at 09:03

    I don’t actually like the idea of externalities being used as an excuse for regulation. Its always possible to find or make up externalities in everything people do. Its even possible to do as socialists have done, to modify what is meant by “property rights” so its impossible to do away with externalities.

    Heck, just the fact that we pay taxes for redistribution into a common pot means that our laziness has external costs to society. Does this mean the state should mandate that we work harder? This is absurd, yet it has been used before in far left countries as an excuse to do so.

    Simply put, I don’t find the externality argument convincing.

  34. Gravatar of Jim Vernon Jim Vernon
    9. April 2010 at 10:17

    Sorry if I’m repeating something in the comments, but let’s remember another implication of the Coase Theorem (one I was extremely reluctant to grasp as a young idealist):

    As long as property rights, institutional arrangements, etc. keep transaction costs to a minimum, *any* distribution of property rights can be efficient. In other words, to solve the restaurant smoking problem, we can either give non-smokers the right to exclude, or we can give smokers the right to pollute. Assuming that either regime allows transactions/bargaining with minimum cost, it’s efficient.

    I’m a non-smoker, so of course I prefer to have the property rights, but the other arrangement is, in theory, still potentially efficient. It just makes me less wealthy and makes smokers more wealthy. It doesn’t distort marginal utilities.

    Best regards,
    Jim

  35. Gravatar of D. Watson D. Watson
    9. April 2010 at 12:11

    Lot of “Coase said” without quoting him. Here’s what he said at his Nobel lecture:

    “Pigou’s conclusion and that of most economists using standard economic theory was, and perhaps still is, that some kind of government action (usually the imposition of taxes) was required to restrain those whose actions had harmful effects on others, often termed negative externalities. What I showed in that article, as I thought, was that in a regime of zero transaction costs, an assumption of standard economic theory, negotiations between the parties would lead to those arrangements being made which would maximise wealth and this irrespective of the initial assignment of rights. This is the infamous Coase Theorem, named and formulated by Stigler, although it is based on work of mine. Stigler argues that the Coase Theorem follows from the standard assumptions of economic theory. Its logic cannot be questioned, only its domain. I do not disagree with Stigler. However, I tend to regard the Coase Theorem as a stepping stone on the way to an analysis of an economy with positive transaction costs. The significance to me of the Coase Theorem is that it undermines the Pigovian system. Since standard economic theory assumes transaction costs to be zero, the Coase Theorem demonstrates that the Pigovian solutions are unnecessary in these circumstances. Of course, it does not imply, when transaction costs are positive, that government actions (such as government operation, regulation or taxation, including subsidies) could not produce a better result than relying on negotiations between individuals in the market. Whether this would be so could be discovered not by studying imaginary governments but what real governments actually do. My conclusion; let us study the world of positive transaction costs.”

    The question that people are stumbling over as I see it is the domain. It seems clear that several of you are working with different definitions of transaction cost.

    On a slightly different note, he complains about O’Donoghue and Rabin picking which preference is right. I’ve had fun trying to explain to the Lovely and Gracious that I would really like to bind my future self to become the kind of person I want to be now. Bound to be patient, loving, kind, hardworking, friendly, outgoing, etc., AND to enjoy all of it. If only we worked that way. She, having more wisdom, is glad we aren’t, even if it means putting up with imperfect me.

  36. Gravatar of Winton Bates Winton Bates
    9. April 2010 at 14:28

    Scott wrote: ‘I’ve argued many times that the public is (rightfully) pragmatic. They will never rally around abstract ideas like “freedom.” They want what works.’
    I can’t agree with you on this. I think questions relating to freedom play a huge role in public policy issues. Most people don’t like others interfering with their lives. Even those with paternalistic inclinations (like myself at times) can be induced to think twice about interfering with the way other people live their lives if they think that if this becomes the general rule they will have other people interfering in their own lives. For example, people with strong religious beliefs who support political action to stop other people from behaving foolishly might be induced to pause to think about the fragility of their freedom to bring up their children in the manner that seems best to themselves (and seems foolish to many others).

    I agree with you that abstract ideas of freedom don’t tell us how property rights should be assigned when disputes arise. Disputes over assignment of rights need to be decided pragmatically – which as I understand it, is how property rights actually evolved. There are not many things more pragmatic than the idea of respecting the rights of others in order to live in peace with them.

  37. Gravatar of Contemplationist Contemplationist
    9. April 2010 at 16:20

    Sorry StatsGuy but the Drug War was started by Nixon

  38. Gravatar of StatsGuy StatsGuy
    9. April 2010 at 17:46

    Yes, you are right, I erred. 1971 speech. Nixon coined the term.

  39. Gravatar of scott sumner scott sumner
    10. April 2010 at 05:54

    Mario, Those are good points. It’s why we need to cut back on public health insurance and deposit insurance.

    Statsguy, You said;

    “Heroin??? The War on Drugs has almost nothing to do with the FDA! Heroin is mostly “regulated” by the legislature. The “War on Drugs” is entirely a Reagan creation – and Reagan hated the FDA.”

    The war on drugs (which actually began long before Reagan) has everything to do with the FDA. If I need Oxycontin and go to the drug store, I will be told that I need a doctor’s prescription. Why? Because of the FDA. But doctors are reluctant to give out such prescriptions for fear that the drug warriors will assume they are dealers. Thus many people go without adequate pain relief. Some commit suicide after their doctors cut them off. Others turn to harder drugs like heroin and morphine. The government has a huge apparatus to control what we can put into our bodies. It includes the FDA, the local police, the FBI, etc. It’s all part of the same paternalistic impulse, and it has done great harm to our society.

    I have seen studies that suggest the FDA does more harm than good, even ignoring the pain medication problem (which tends not to show up in the statistics.) Because the FDA has delayed the introduction of highly effective drugs for many years, it is estimated that more lives have been lost by overly conservative FDA policies, than saved by preventing dangerous drugs. It is all about bureaucratic incentives. If you hold back a drug for 7 years that ends up saving 100,000 lives a year, we give the bureaucrat a pat on the back and say “better safe than sorry.” If you allow a dangerous drug that kills 26 people, you go before Congressional hearings. Which mistake would you like to avoid if you were an FDA official?

    Regarding the Coase Theorem, check out my new post. At the end I link to a David Henderson post. He knows much more about this than I do, and confirms that externality arguments do not apply on private property.

    You asked:

    “The libertarian counterpoint is caveat emptor, but have you ever considered that regulation itself might be a Coasian optimal solution in situations with information asymmetry? When consumers know they have no recourse and poor information, many simply choose not to participate in the market.”

    When consumers desire more info on product quality, the market is very good at providing that information. Consumer Reports does a good job of rating cars and many other products according to reliability. I’m not opposed to all lawsuits, if the company makes a quality claim and it is false then the consumer should be able to sue.

    Doc Merlin, I agree that externality arguments are usually abused. But they are not false in all cases. Suppose I start emitting highly dangerous chemicals from my backyard? Stuff like nerve gas. Shouldn’t that be regulated?

    Jim, That’s right, and if transactions costs are a barrier, then the owner of the property should regulate its use.

    D Watson, Those are good points about the Coase Theorem. Regarding your last point, someday I plan a post on utility and rationality, and will argue that these concepts are impossible to pin down. Any definition will seem inappropriate in some contexts. Ultimately, all this stuff rests on quasi-religious faith.

    Winton, I think there is some truth in what you say, but can’t quite agree with this:

    “Most people don’t like others interfering with their lives.”

    I’ve seen polls that show most people think there should be a law requiring the wearing of seat belts. Indeed I find people I meet usually favor all sorts of restrictions on freedom. On the other hand most people do value a certain amount of freedom for non-utilitarian reasons. So this might help prevent excessive regulation from developing.

    Contemplationist, Yes, and of course the actual war started decades before the term was coined.

    Statsguy, On another topic I liked some of your comments on Simon Johnson’s Greece post. It was a very good post, and the comments were also interesting.

  40. Gravatar of Coase Theorem, Smoking, and “Libertarian Paternalism” « Free Radical Coase Theorem, Smoking, and “Libertarian Paternalism” « Free Radical
    11. April 2010 at 12:28

    [...] you may remember suffers from utilitarian sympathies) is doing my job for me so I will defer you to this post and this [...]

  41. Gravatar of Le « paternalisme libéral  e ndébat « « Rationalité Limitée Le « paternalisme libéral  e ndébat « « Rationalité Limitée
    12. April 2010 at 06:18

    [...] sur le tabac (encore que cela ne soit pas si clair du point de vue du théorème de Coase, comme le remarque Scott Sumner). De la même manière, ce type de mesures peut probablement se justifier lorsque, du fait des [...]

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