Rational Agent Paternalism

While paternalism is about bias, it need not be about irrational bias.  In a 2003 Journal of Public Economics paper, I modeled product bans and warnings directed at completely-rational consumers, and chosen by a better-informed completely-rational regulator who only cares about economic welfare.   I found:

  • Even ideal regulators want to lie about product quality, to correct for other market failures.
  • Even a small temptation to lie makes consumers disbelieve most of what regulators say.
  • Regulators who can ban sometimes do, as consumers won’t believe severe warnings.
  • Consumers believe more severe warnings from regulators who can only warn. 
  • When regulators prefer to talk up quality (e.g., in health, school, investing), both regulators and consumers are better off if regulators cannot ban.

Yes, this model may be less relevant if irrational biases are central to paternalism.  But it at least gives us a concrete reference point.  Weather permitting, David Balan and I debate paternalism today. 

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  • Stuart Armstrong

    From your paper:

    Averaging over possible quality levels, a regulator who expects under-consumption is better
    off when she cannot ban the drug,

    I didn’t have time to go through the maths in the core of the paper – just wanted to know, if this is a average, is there a quality level where the regulator is better off when she can ban the drug?

    And good luck to you and David in your debate!

  • Stuart, the average is over many quality levels, and yes sometimes the sign goes the other way, but there is no simple rule to say in which situation the effect goes which way.

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  • Daniel Lurker

    You mentioned at the end of the debate that you thought there was a net bias towards correcting market failure in the guise of paternalism. Do you have any examples? I can think of plenty of instances of the opposite – government intervention against an individual with the claim that they’re doing it to protect others or correct a market failure. On NPR yesterday there was a discussion of motorcycle helmet laws, and the response to the anti-mandate groups position invoked the cost of treating head injuries and the socialization of those health care costs, “So, obviously this affects us all”. Ditto with transfats, the alleged obesity “epidemic”, etc. I’m skeptical, since we don’t see these same people screaming “Smoke more, the rest of us will pay less for medicaid when you drop prematurely!”

  • sa

    on a related note, i just want to say that i find this whole discussion of regualtory paternalism on OB very interesting. in india, i see these types of things every day in real life. i would add that robin’s reason as regulators correcting for market failure hits the nail on the head.

  • Daniel, Bryan Caplan notes that parents tell kids to go to bed at a certain time because that makes life easier for the parents, even though parents talk as if they were doing it for the kids benefit. Similarly, alcohol mostly benefits those who drink it, but often at the expense of others around them, and so we limit alcohol but say we do it to protect the drinker.

  • Douglas Knight

    but say we do it to protect the drinker.

    We do? Maybe, I’m not sure. I am sure that cocaine and marijuana were originally banned in the name of violence. I am pretty sure that Prohibition was brought about by women concerned about their husbands’ drinking.

    Has something changed in the way we talk about drugs? or just government?