Sunday, March 14, 2010

Random externalities

A complete reiteration of my arguments against exceptional circumstances provisions for farmers can be found on today on Business Spectator courtesy of David Leyonhjelm.  Simply, we fear a non-existent negative externality of diminished food production should farm businesses fail.   

As a parent I also found this article on the externalities of public advertising quite intriguing.  It seems that movies (private consumption decisions) need to be classified to prepare the viewer for their level of violence and sexuality, yet advertising in public spaces seems to be M rated even when Parental Guidance is not possible.  To avoid this negative externality on children and parents could we not adopt the G rating standard from the film and television industry as the standard for public advertising?

Those who are a fan of the movie Pay it Forward will ba happy to see that acts of kindness can spread through society very easily.  Just another bit of evidence for how culture can change behaviour and how our preferences, expressed through our behaviour, are not fixed at all (as economists would have us believe).  Given this is an example of a positive externality, economic theory would suggest we will face a constant battle to ensure a socially optimal level of kind acts.  Luckily the research suggests that once we adopt a strategy of kindness we don't go back to selfishness very easily.

In the current study, Fowler and Christakis show that when one person gives money to help others in a "public-goods game," where people have the opportunity to cooperate with each other, the recipients are more likely to give their own money away to other people in future games. This creates a domino effect in which one person's generosity spreads first to three people and then to the nine people that those three people interact with in the future, and then to still other individuals in subsequent waves of the experiment.

The effect persists, Fowler said: "You don't go back to being your 'old selfish self.''' As a result, the money a person gives in the first round of the experiment is ultimately tripled by others who are subsequently (directly or indirectly) influenced to give more. "The network functions like a matching grant," Christakis said.

"Though the multiplier in the real world may be higher or lower than what we've found in the lab," Fowler said, "personally it's very exciting to learn that kindness spreads to people I don't know or have never met. We have direct experience of giving and seeing people's immediate reactions, but we don't typically see how our generosity cascades through the social network to affect the lives of dozens or maybe hundreds of other people."

People have previously suggested that happiness too can spread through social networks, although it may partly be that happy people are attracted to other happy people.  But all this new research does tend to suggest that you should choose your friends wisely, keep you children in cinemas instead of on the street, and buy a farm to ensure a government supported lifestyle. 


  1. Is it truly a negative externality that children see M rated content? From an Australian/UK/American insular viewpoint - it is self-evident that this content is a negative externality. However could there be a deeply coveted third level n.e. of adult guilt? I am of course no expert in psychology, but looking overseas to mainland Europe, and seeing naked breasts on billboards there, and of course it is self-evident in their culture that this is not morally questionable, raises the question: are we coddeling our children too much?

  2. Very good question Chris. I guess all have as a moral benchmark is our own community.

    But, when we move to another community and see their moral benchmark, we need to dig deeper to determine what justification there could be for the different standards observed.

    Maybe you are on to something with adult guilt, but my explanation is more mundane an appeals to principles of cultural evolution.

    One example is Australia's popular beach culture, yet swimming costume conservatism and rareness of beach nudity. We don't want to expose ourselves too much on the beach, yet are happy to walk around the city shirtless during summer. Maybe, because the beach and towns are so connected, if we were more relaxed about nudity on the beach, such behaviour might begin to flow across to other parts of the city. At some point we would collectively say enough is enough.

    So we end up with this ironic picture where we seem laid back and open because of beach culture, yet end up quite conservative when it comes to nudity.