Quality Regs Say ‘High Is Good’
95% think doctors should be licensed. … 96% oppose legalizing crystal meth. (more)
One of the main ways that our world is not libertarian is that it is full of government rules requiring minimum quality levels for many kinds of products and services. We see this for food, drugs, building codes, auto/plane rules, allowed investments, censorship, professional licensing, school accreditation, sports equipment, and much more. Once you look for them, you find such rules everywhere. So a key basic puzzle is: why do we have so many min quality rules?
Here are some clues to keep in mind:
Though these rules limit consumer choices, they have strong voter support.
Such rules were far less common in the ancient world.
Today these rules are extremely widespread, across many areas of life and types of societies and governments.
These rules are implemented via many channels: liability law, regulatory agencies, and legislation.
Poor nations tend to have lower standards, like rich nations did when they were poor, yet we see few exceptions for poor people or neighborhoods.
Product bans are far more common than are official quality evaluations.
Many such rules are retained even when they seem quite ineffective, such as laws against vaping (little health harm), recreational drugs, and prostitution.
We don’t make exceptions for customers who can show that they clearly understand that the product is considered low quality.
One explanation is that producers lobby for such rules, to limit competition. However, this often doesn’t actually reduce competition much; there can be nearly as much competition among those who can satisfy these rules as there would be without them. And if such rules cut overall demand for their product, that hurts these firms overall. In addition, it seems unlikely that politicians would support such rules if voters hated them. So we need to understand why voters don’t dislike, and quite often support, such rules.
Another explanation is externalities in product use. Shoddy cars can cause more car accidents, while shoddy buildings might start more fires that spread to neighboring properties. Ineffective drugs might keep patients contagious for longer. But use externalities are pretty minimal for most of these products, and often such externalities are positive; others often benefit from your using a product. In addition, our legal system already has mechanisms to discourage use externalities; if those aren’t working well enough, let’s just dial them up a notch (such as via FIB).
In simple supply-and-demand models, product quality is always optimal. However, quality choice can go wrong when a monopolist faces fixed or marginal costs of creating product quality, and sells to customers who vary in how much they value higher product quality. In such models, the monopolist chooses too low a quality, relative to welfare maximization, because they focus on their marginal customer, who has the lowest value for quality among all of their customers.
However, if we instead model a sequence of firms selling products of differing quality to customers with different tastes for quality, then only the firm that sells to the most discriminating customers chooses too low a quality. All the other sellers make good quality choices, as they have two kinds of marginal customers, at the low and the high ends of their customer range. So this model only predicts low quality problems for the highest quality products. It is private jets, mansions, and lobster dinners that aren’t quite as fancy as they should be. This can’t justify our usual min quality rules focused on the lowest quality products.
Another possible explanation is that customers are ignorant of product quality, while legislators, regulators, or courts know more about quality. If customers want to match the quantity or style of their product use to the quality of that product, they might appreciate the info implicit in a min-quality-based ban. Given such a ban, all product quality is known to be above the min level, which is a smaller quality range than without the ban. However, such customers should even more appreciate just being told the product quality level. Relative to being given such quality info, customers expect to be worse off with bans.
Sloppy and error-prone customers, who do not always do what they intend to do, have an additional reason to appreciate product bans. Such bans prevent them from accidentally choosing a lower quality than they intend. However, bans on higher quality products, favored by almost no one, would serve a similar function, by preventing customers from accidentally choosing a higher quality than they intend. And if this were the key problem then a simple solution would be to create “would have banned” stores, i.e., stores which only offer products that would usually be banned.
Imagine that, to shop in such a store, you had to get a license by passing a test showing that you really understand that these products would otherwise be banned, and you had to schedule your visit two days in advance, to prevent impulse purchases. We might even add educational or IQ test requirements to get the license. Yet even with all these added precautions, it seems quite unlikely that voters would support allowing “would have banned” stores. This makes it harder to believe that sloppy actions are voters’ main concern when they support min quality regs.
Another possible explanation for quality regs is that the value of quality evaluations and certifications is reduced by the temptation of evaluators to lie about quality. For example, a drug regulator seeking to prevent auto accidents might exaggerate the harms of alcohol, and underplay the harms of caffeine, relative to their real health risks. A month ago I reviewed my theory paper on this:
My model … applies to any one-dimensional choice of an activity level, a choice influenced by an uncertain one-dimensional quality level. Thus my model can help us understand why people placed into a role where they can either advise or ban some activity would often ban. Even when both parties are fully rational, and even when their interests only differ by small amounts. The key is that even small differences can induce big lies and an expectation of frequent bans, which force the advisor to ban often because extreme advice will not be believed.
This can explain the existence of bans given the existence of an informed regulator who is allowed to choose bans. However, I also show that there are large sets of cases where both sides are better off when no regulator is given the power to ban, something like how in the U.S. 1st amendment rights prevent most banning of books and magazines. We could declare many more such rights if we wanted, but we don’t. In addition, this model predicts that officials will, nearly as often as banning, publish quality evaluations of allowed products. But they don’t publish evals remotely as often as they ban. Also, this theory doesn’t seem to predict the pattern that we see of standards varying with national but not neighborhood income.
The explanations that we’ve discussed so far all assume rational, if perhaps ignorant, consumers. But one might instead postulate that consumers are proud and stubborn, and so just won’t listen to advice. Perhaps most consumers consider regulators to be arrogant blowhards unworthy of deference, and so the only way to protect those consumers is to just ban bad products. However, if these proud folks don’t respect regulators enough to take advice from them, why would they as voters support creating such regulators and empowering them to ban or certify products? This doesn’t make sense.
Min quality regulations for housing, such as min lot sizes, max building heights, and max people or families per apartment, tend to have the effect of making it harder for poorer people to live in places with such regulations. Rules that keep out cheap grocery stores or restaurants have a similar effect. So a desire to push poor people away from one’s geographical area is thus a plausible explanation for at least some kinds of min quality regulations. However, this works poorly as an explanation of min quality regulations that are adopted by decision-makers whose jurisdiction is over wide geographic areas. The poor have to go somewhere, after all.
In most societies in history, people have been eager to (1) know their place in the local status hierarchy, (2) get people below them to publicly acknowledge their higher status, and (3) find ways to rise to higher levels and to avoid falling to lower levels. People have also tended to use different explanations for how people above and below them got there. For people above us, we tend to focus on luck of birth, and on their happening to have more money and better social connections. For people below us, we tend to focus on their poor abilities, behaviors, and choices.
Long ago, relative status was more often overtly acknowledged in more direct ways, such as via accent, dress, formal greetings, who steps aside to let the other pass, who gets priority when served, who is allowed to accuse who of lies, etc. Many of these customs gave the impression that the higher status person was the better person. With fewer such overt acknowledgements today, elites may now be especially hungry for ways to have society acknowledge and affirm not only that they are higher status, but also that higher status people like them are actually better people in most important ways, and not just people who happen to be higher via historical accidents.
Thus another possible explanation for min-quality regulations is that, by officially declaring common lower class choices to be bad choices, regulators support upper class claims to be better people. And by forcing everyone to visibly accept this declaration via their not visibly defying the bans, everyone appears to support this claim that elite choices are better choices.
As elites believe that lower classes get there in part by making bad choices, and intuitively feel that the usual elite choices are good choices, elites find it easy to conclude that the different odd-to-elites choices made by lower classes are in fact bad choices. Naive data correlations tend to support such claims of course, as higher classes tend to have better outcomes.
So elites can tell themselves that they are helping lower classes by banning bad choices, and not consciously notice that this also helps elites to get others to officially affirm that they are better people, deserving higher status, due to their better choices. And since a great many of the different choices made by lower classes can be framed as their choosing lower quality, regulations that ban such choices can often be framed as min-quality regulations.
For example, elites often tell themselves things like “it just doesn’t make sense to buy cheap goods, as quality goods last much longer” or “the extra trouble to make sure your meat hasn’t gone bad is well worth the cost.” Pushing for regulators to make sure that everyone is legally required to follow their example feels to elites emotionally like they are helping, and it also happens to assert their moral dominance. Elites are high because they are right, and they are good and helpful to force others to follow their lead.
Okay, quality regs might make elites feel good, but why would so many non-elites support these policies as voters? Plausibly because they aspire to elite status, and by publicly displaying their agreement with elite attitudes, they affirm that they are themselves good candidates for higher status. For example, if min quality regulations only actually take away the choices that would otherwise be made by the lowest one quarter of the population, the other three quarters can sincerely support those regulations, and feel good about showing that they are not low status. And those who actually are inconvenienced by bans may not want to publicly admit this fact if that would signal their low status. So most people can rarely feel inconvenienced by regulations which officially declare that they are good people because their choices are good choices.
While all of the explanations that I’ve considered above have some place in the total picture, I suggest this affirming-high-as-good explanation as the strongest social force in creating and maintaining min quality regulations. It substitutes today for the many lost ways that ancient elites got more direct and frequent affirmation of their goodness. And it better fits the many puzzling details we see in our min quality regulation patterns.
Added 21Sep: An obvious implication if this theory is that we’d be better off without min quality regs. While there are some products & services where low classes would do better to copy elite choices, in most areas the different choices are better explained as reasonable adaptation to different contexts.
It's been a while, but I think such a move would be an antitrust violation - if the patent holder gave preferred licensing terms only to other members of the standards committee.
Usually licensing of patents necessary to implement a standard (I and I suspect a court would think "efficiently enough to be practical" is implied there) has to be done on a non-discriminatory basis. All applicants have to be offered the same terms.
Of course, actors try to play games at the edges. If an implementation is costly and time-consuming, and requires expertise to do well (expertise that takes time to develop), a player who has already made those investments will try to get that technology mandated in the standard, for the sake of the time-to-market advantage and because they think that by starting further up the learning curve, they may have a sustainable advantage over competitors.
OTOH, their competitors are watching for just such moves.
Sometimes people get away with stuff. Other times there's log-rolling (I'll let your pet thing in if you'll let mine in), etc.
Other times the high-investment thing is really enough better than the alternatives that it's worthwhile letting somebody have an advantage from their previous investment, for example if competitors think their resulting less competitive position might be outweighed by creating a bigger market.
Of course some players have longer time horizons than others, and some have a more enlightened view of their self-interest than others.
In other words, politics.
Thanks! But how is this not horribly abused?
For instance the obvious cartel move in tech would be to release a standard that demands tech which is theoretically open, non-exclusive etc but requires features whose *efficent* implementation requires tech/trade secrets known only to one of the companies making the standard (and throw each such company that bone).