Regulating Vice: Chapter 2, "Addiction: Rational and Otherwise" (part II)
- posted by Jim Leitzel @ 9:52 AM

My project of providing a running summary of Regulating Vice came a cropper in early December, but is herewith revived. We left off after characterising rational addiction. Chapter 2 continues with a look at time inconsistency, which we first blogged about during Vice Squad's inaugural week. The basic idea is that people tend to be more impatient with respect to choices concerning the here and now and near future, than they are about choices over alternatives for the more-distant future. So folks have a sort of prudent, patient, long-view Dr. Jekyll side, and an imprudent, impatient, live-for-the-moment Mr. Hyde side. Mr. Hyde decides how much to drink today, and Dr. Jekyll finds the choices made on his behalf by Mr. Hyde to involve excessive drinking.

There is nothing obviously "irrational" about time inconsistency -- that is, there is nothing inherent in rational choice which requires dynamically consistent choices. But private and public vice policies appropriate for a rational, time inconsistent person might differ from those policies appropriate for a dynamically consistent rational consumer. (Similarly, policies appropriate for irrational consumers also might differ from those of rational, time consistent consumers.) Dr. Jekyll's might look for some commitment device that will keep Mr. Hyde's from drinking too much, and public policies such as taxes or buyer licenses can help Jekyll gain the upper hand. [We could be evenhanded, and say that the public has no more reason to side with Jekyll than with Hyde, but vice tends to be associated with excess. It seems to be more common (or more painful) to regret one too many drinks than one too few.] The costs that Hyde imposes upon a non-consenting Jekyll have many of the marks of economic externalities -- the difference being that rather than Hyde and Jekyll being two physically separate people, they are different incarnations of the same person. In an analogy with "externalities," these costs are called "internalities." And if you accept the externality-internality analogy, then a harm to Jekyll is a type of "harm to others," and hence social coercion of Hyde does not violate John Stuart Mill's harm principle.


Regulating Vice Posts Roundup:
(1) Announcement
(2) Introduction (part I)
(3) Introduction (part II)
(4) Introduction (part III)
(5) Erratum, Page 2!!
(6) Chapter 1, The Harm Principle (part I)
(7) Chapter 1, The Harm Principle (part II)
(8) GMU Talk (part I)
(9) GMU Talk (part II)
(10) Chapter 2, Addiction (part I)

Labels: addiction, dynamic inconsistency, Mill, Regulating Vice

 
Smoke or Swim? Supra-Immediate Gratification
- posted by Jim Leitzel @ 9:56 PM

Friend of Vice Squad Dima Masterov sends along this notice of a man who had to make a quick decision when the car he had been driving was sinking into a pond with him in the driver's seat. Fortunately, he didn't panic: he decided to smoke some crack.

Now, one of the explanations of how choices concerning drug consumption might not be fully rational has to do with an excessive focus on present pleasure, but this case is fairly extreme even for the present-oriented.

For more on immediate gratification, see this paper (31 page pdf) by economists Ted O'Donoghue and Matthew Rabin. And speaking of immediate gratification, I am so pleased -- really, too pleased -- with the new search feature at the top of Blogger blogs! I might search Vice Squad all night long. I'll search on "the", or "and", or "snus". Oh, won't it be grand?

Labels: cocaine, dynamic inconsistency, solipsism

 
Obesity (with update)
- posted by Jim Leitzel @ 6:09 PM

All sorts of movement on the obesity front recently. A few days ago, the US Centers for Disease Control and Prevention released their report showing that physical inactivity and poor diet are on their way to catching tobacco as the leading behavioral causes of death. CDC estimates that in 2000, some 435,000 Americans died from tobacco-related causes, with obesity behind another 400,000 deaths; alcohol claimed 85,000, while illicit drugs were connected to 17,000 deaths. One day after the report was released, the US House of Representatives passed a bill (Los Angeles Times story, registration required) that would forbid class action lawsuits attempting to hold the fast-food industry responsible for obesity in their customers. Some states have already adopted similar legislation, while other states have related bills under consideration. Here's an article about Ohio's measure; Wisconsin, Washington, and Florida also are among those states with pending legislation. Meanwhile, McDonald's has announced that it is phasing out super-size portions (no word on the super-duper-size), while the Swiss are considering a tax on fatty foods.

The standard off-the-shelf economics approach to all this, of course, is to ask, well, what's wrong with obesity? Eating mounds of food and not exercising are consumer choices, and as long as there is no deception taking place, there's not much of a case for government intervention (or for those blame-the-seller lawsuits). But such reasoning only applies if we can trust the "rationality" of decisions to eat and (not) exercise. How could we make an argument that such choices are not rational? One approach might be to note that our tastes for food evolved over eons in which food was harder to procure than it is now -- sugar itself did not become a global commodity until relatively recent times. So our appetites are not well suited to the new situation of food abundance that characterizes today's rich nations. Alternatively, one could make the same sort of “self-control” (dynamic inconsistency) argument that comes up in looking at consumption of addictive products.

A recent article in the Journal of Economic Perspectives (Vol. 17, No. 3, Summer 2003), “Why Have Americans Become More Obese?,” by David M. Cutler, Edward L. Glaeser and Jesse M. Shapiro, attributes American weight gain to improvements in the mass production of food and a resulting increase in caloric consumption (calories expended have not changed much in the last 20 years). These authors argue that for most people, these technological changes have been welfare-improving, even though they have contributed to obesity. Only people with extreme self-control problems, according to the article, would find themselves worse off from the technological improvement in centralized food preparation, and as there is little evidence for such extreme preferences, most Americans have benefited, just as naive economic reasoning would suggest.

Update: Vice Squad has looked at obesity policy in the past; oh, and another look was taken during my guest stint at Crescat Sententia. Overlawyered has a post on the House vote, with reams of useful links. The Adam Smith Institute fills us in on developments in the UK, where food advertising is attracting regulatory attention.

Labels: dynamic inconsistency, obesity

 
Dynamic Inconsistency
- posted by Jim Leitzel @ 11:10 AM

The Summer 2003 Journal of Economic Perspectives arrived yesterday
with an article about the research of Berkeley economist Matthew Rabin.
Among many other things, Rabin has worked on models of choices that
display "dynamic inconsistency." Would you prefer $100 today or $112
one week from today? Many people would take the immediate $100.
Would you prefer $100 one year from today, or $112 one year and one
week from today? Many of those same people who liked the immediate
$100 in the first choice are willing to wait one more week for $112
when the choice concerns the same outcomes, but delayed for one year.
These people are "dynamically inconsistent". Why? Because in the second
situation, what happens after one year has passed? The choice is now the first
situation, an immediate $100 or a one-week delayed $112. But their choice
in the first situation tells us that now they don't want to wait that week
for the additional $12. There is some evidence that many people tend to
exhibit this form of dynamic inconsistency, a greater impatience displayed
in choices concerning the near future than the more distant future. In my
case, introspection also lends support to the hypothesis of dynamic
inconsistency.

What does this have to do with vice? Dynamic inconsistency is
important with respect to potentially addictive goods. From the point of
view of the more patient version of our inconsistent consumer,
the person deciding today on whether to consume cocaine or
alcohol is excessively indulgent. And potentially addictive goods are
reinforcing, use today encourages more use tomorrow. So a person could
end up consuming large amounts of alcohol, for instance, even though
her more patient persona would consume very little, and regrets the
fix that her short-term decision-maker has got her in.

The policy implications for this sort of behavior can be extremely
significant, as Rabin pointed out in a recent paper with Ted O'Donoghue,
"Studying Optimal Paternalism, Illustrated by a Model of Sin Taxes."
Specifically, a "sin tax" on addictive goods can be very valuable for
someone who is dynamically inconsistent, while at the same time imposing
few costs on fully rational, consistent consumers. A similar approach
has been taken to cigarette taxes by MIT professor Jonathan Gruber;
Professor Kip Viscusi of Harvard Law has a different perspective.

The rationality of choices concerning potentially addictive goods, and its
implications for vice control, will undoubtedly be a topic that this blog
will return to....

Labels: addiction, dynamic inconsistency