Wednesday, August 13, 2008

Externalities v irrationality

I would like raise an issue that has been rattling around my mind for many years now. After spending time travelling to various countries around the world, trends regarding the attitude of countries to personal and community responsibility have begun to emerge. For example, in Canada ski resorts bomb for avalanches outside the skiable terrain and search these off-piste areas at the end of each day. In Austria, unless there is a danger of avalanche on-piste it is every man for himself in other areas. You find similar things around the cities. In Vancouver I noticed people cross the street wherever and whenever suits. In Brisbane you get fined for jaywalking. I’m sure you can think of many other ways that some governments choose to protect individuals from themselves, but fail to protect individuals from the actions of others.

An economist would take the stance that role of government is to protect property rights, and in particular, to rectify the externalities that occur when one persons actions incur costs on another. In all other ways, individuals should be able to rationally choose for themselves the amount of risk they are willing to take. Let’s take Australian smoking regulations as an example. The first point of call for governments was to protect individuals from themselves by requiring warning labels on packaging. It was not until very recently that governments stepped in to protect non-smokers from smokers in many public buildings with indoor smoking laws.

Another example is the regulation of bicycle helmets (which is unique to Australia). Governments seem so keen to protect cyclists from themselves but fail to provide any road space for cyclists, nor training of the appropriate treatment of cyclist by drivers in the licence test, to protect them from the actions of others (or maybe that’s why we need helmets).

While I’m on to the cycling thing, I also seem to choke all the way to work each day from the exhaust of the motoring public. Pollution of this nature is the classic example of an externality in economics. It’s great that I have a helmet to protect me from falling, but the actions of others are costing me my lungs! Fair enough, I drive too, but since I bear a cost from ‘road pollution’ I would be happy to bear the cost of strict pollution regulation. Remember, I should be able to act in any way I choose as long as it does not impose costs on others. I have no right drive if that is the case.

I know some of you are thinking that the helmet laws and smoking laws are there to save the community incurring the health care costs, but you'll see from my health care post that such preventative actions lead to increased rather than decreased health care costs. The main message here is that root of these issues on the accepted scope of the legal term ‘duty of care’. In some countries, the government is seen to have an overly tight duty of care to the public, while in others there is much more personal duty of care.

So what is the reason for such frustrations? Simply, it offends me that an adult member of society cannot take responsibility for their own actions, while at the same time is in a position of bearing the costs of the actions of others. Also, it worries me that we are breeding a society that bears no personal responsibility, and has legal recourse to blame others. We laugh sometimes at the outcomes of court cases in the US, but don’t think we are immune from such stupidity. Imagine a society where I could governments take responsibility for individual stupidity. Where would it end? I agree that governments should make an effort to create a safe society, but they should not take responsibility away from the individual. They should protect us from others and let us take the consequences of our own actions.

Any thoughts, or interesting examples that I have missed?

1 comment:

  1. The recent banning of the Merry-Go-Round at the Ekka. If a child (QLD only) fell, their head could get squashed under the horse. It'll be those brutal turnstiles next...

    Also interesting to point out the diffusion of responsibility that occurs as well. A PM if caught out will deny being made aware. Ultimately it is his responsibility to be made aware.

    i.e. Port of Brisbane own the board walk under the Storey Bridge. They have found a 'safety issue' with too much weight potentially collapsing the side walk. Instead of taking responsibility and repairing they are deferring to BCC !

    While protecting us by acknowledging and legislating against risk they are putting themselves at risk by taking this action. They pre-empt and hence self-fulfill their risk.

    Everyone situation needs a scapegoat. (As long as it's not me!)