It is hard for some people to believe this, but markets can and do provide people with products and services produced in accordance with their values in a way in which many presume requires regulators. A lot of what we would think of as unethical behavior on the part of firms could be done away with if consumers demanded it.
I think progressives would disagree with me here by pointing to surveys that show consumers want all sorts of goods produced in accordance with progressive values that the market isn’t providing. Yes, I’m sure if you ask them, consumers say they would pay $.01 more per pound to give tomato pickers a $2 an hour raise. I’m sure people tell survey respondents they’d love organically grown food, or higher gas mileage cars, and that they would definitely pay a lot more for it, it’s just that companies are providing them. The progressive response here is that businesses must be forced, nudged, or subsidized into providing what consumers want. But what people will tell a surveyor that they want and what they say they’d be willing to pay for it doesn’t actually determine the market-wide willingness to pay. It’s what they actually would pay. This is what economists call “stated preference” versus “revealed preference”. As you can imagine, revealed preference holds a lot more weight among academics.
I think the demand for more environmentally friendly and ethical agriculture is a good thing, and will in the long-run lead to improved conditions better than what regulations alone can or would provide. Sometimes regulations can even get in the way of market outcomes that would be more in accordance with progressive values.
Case in point is slaughterhouses. A recent story in the New York Times details how a slaughterhouse shortage is stymieing a variety of local, organic, and more humane meat producers:
One might expect the Bay Area — as the epicenter of the eat-local movement and a region with a long tradition of cattle ranching — to be a mecca for producers of organic and grass-fed beef. But there is a problem: a shortage of slaughterhouses is so acute that it is stunting the growth of this emerging industry….
Slaughterhouses have been on the decline nationwide, but a demand for more niche products has led to an increase of small slaughterhouses nationwide. In California however, there remains a shortage. The story explains why:
…Mr. Thiboumery is pessimistic about the chances for new facilities in California. Here, potential operators face stringent state regulations, unforgiving zoning laws and the dreaded Nimby factor.
“Basically, if I were to build a slaughterhouse, the last place I would build it is California,” Mr. Thiboumery said.
The article doesn’t go into it, but as I’ve written before, USDA regulations set equipment mandates designed for large, industrial, high volume slaughterhouses in a way that is too costly for smaller slaughterhouses ones to afford at the scale and volume demanded from them. Loosening these regulations seems like an area for cooperation between progressives and libertarians.
Of course, libertarians would argue that once you decide to set equipment standards you’re destined for regulatory capture such that the only way to really prevent this type of subtle protectionism is to stop setting equipment standards. Progressives would counter that if you don’t set these standards, then the companies will race to the bottom and use the least safe equipment possible, the costs of which will be borne by workers. The libertarian counter-counter-point is that more dangerous conditions will mean they will need to pay higher wages, but progressives would respond….. Wait, why did I think this was a possible area for libertarian and progressive agreement again?
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Friday ~ April 8th, 2011 at 8:32 am
DJ Any Reason
Your preamble on revealed vs. declared preference is patently silly. Suppose a new formula making car fuel significantly cleaner burning were developed, which raised prices by $0.10. Suppose, further, that 70% of respondents said they wanted it to be mandated, and their preferences were such that politicians promising to mandate the cleaner fuel consistently won elections over those who did not. Yet when introduced at the pump it sold not at all. You call this evidence of revealed preference trumping declared preference, and as evidence that there should be no mandate on which formula of fuel must be sold. I call this evidence that people understand collective action problems and their own lack of willpower at point of sale.
Friday ~ April 8th, 2011 at 8:45 am
Adam Ozimek
You’re talking about revealed versus stated preferences over policies, I’m talking about preferences over what goods they want to consume. These are completely different. Since voters don’t bear the costs of their own true voting preferences, we don’t have nearly as much reason to think what they say they want is different from what they want. When you buy something, you must pay a cost for your beliefs, when you vote that is not the case. Bryan Caplan wrote a whole book about this. This actually demonstrates my point: surveys are like voting, not like shopping; your choices cost you nothing in the former.
Friday ~ April 8th, 2011 at 9:33 am
DJ Any Reason
Perhaps I’m still misunderstanding, but I don’t see how this handles the collective action problem whatsoever. Take littering, as the most basic example – if a sufficiently large minority of people value throwing crap on the ground over clean streets, then it doesn’t really matter what the “market” would say, there’s still going to be crap on the streets. And that doesn’t even get into the free-riding aspects of this.
“But,” you say, “throwing crap on the streets is totally different! Its not an economic activity! There’s no price mechanism!” Ok, without granting this point, consider people’s desires not to have animals bred, housed, and slaughtered in an inhumane manner. Again, a significantly large minority who values price over treatment of animals can ensure that inhumane treatment persists (to say nothing of free-riders). And, certainly, to those who value humane treatment, it isn’t the knowledge that the food they buy is cruelty-free that they’re after. The fact that inhumane meat production is still going on is their problem. And, like any rational human being, they would rather save money, all else being equal. So, since they cannot end cruel farming practices with their own economic power, they are more inclined to free-ride, even though their actual preference would be for the choice not to be available to them or to anyone.
Friday ~ April 8th, 2011 at 9:45 am
Adam Ozimek
I am not arguing against policies to solve collective action problems. That is the disconnect here. What I am addressing is claims that you can tell how much a consumer wants to pay for a good by asking them. This isn’t an argument against regulations per se, it’s an argument against arguments for regulations based on “consumers want this, they will pay for it, it’s just that firms aren’t supplying”. Don’t take my argument that demand for ethical behavior can substitute for regulations as an argument against all regulations.
Friday ~ April 8th, 2011 at 10:03 am
DJ Any Reason
Gotcha. In that case, then yes, I agree.
Friday ~ April 8th, 2011 at 3:55 pm
Hyena
I think that this argument has little force without a poll revealing what consumers think the production of these goods is actually like. A lot of people labor under the delusion, for example, that high tech manufacturing is pervasive and are shocked when you explain that an iPad is close to being handmade.
A revealed preference for cheaper tomatoes may say nothing about someone’s value judgments and a lot about their knowledge of the product, or lack of it.
Friday ~ April 8th, 2011 at 6:02 pm
Adam Ozimek
If you can raise the price of something by making people aware of it, business will work very hard to make people aware of that. That said, people don’t like to be guilted, so that can probably hold that strategy back. Even still, this would at most be justification for a the government to fund information campaign. I am a big fan of PETA’s work in generating awareness about the treatment of animals.
Also, I would still find stated preferences very unconvincing here. You could definitely do some experiments and find out how much information affected willingness to pay in this market from revealed preference data.
Saturday ~ April 9th, 2011 at 1:36 am
Hyena
It wouldn’t surprise me to find that, once again, most people are basically sociopaths in private.
Saturday ~ April 9th, 2011 at 2:11 am
Hyena
Actually, I just realized that it might be impossible for businesses to do this. First, it would likely be far too costly to indict all the competing brands and certainly unacceptable to do so on a grocery store shelf (do you think Vons will let you say the rest of the meat section is one step from puppy murder?). Second, even if you could do this, you’d run severe legal risks from doing so. I think groups like PETA get a lot of protection simply by being non-profit groups, providing them some necessary free deference in court that keeps libel suits at bay.
Saturday ~ April 9th, 2011 at 8:46 am
Adam Ozimek
You probably couldn’t name names, but you could say “we’re the only one who…” and then list good things, and say “everyone else does…” and list bad things or “almost everyone else does…” or “95 percent of the industry does…”
Friday ~ April 8th, 2011 at 5:26 pm
Lyle
I think point the finger at the lack of small slaughterhouses in CA at the USDA is the wrong place to point. If it were the USDA it would be nationwide. It is the state of California (and local governments) and its love of regulation that is the issue. It seems that some want to blame every issue on the feds, but if something is working in one part of the US but not another, its hard to blame the feds, but easy to blame the state and local folks. Consider that CA has “humane treatment” laws for cattle that increase the cost of doing business there. In addition the strong NIMBY faction in northern ca would object to a slaughterhouse nearby because it would decrease their property values.
Land use regulations are a large part of the reason Ca costs so much people have to go 60 miles to find a suburban house (partly due to topography also)
Friday ~ April 8th, 2011 at 5:41 pm
Adam Ozimek
Lyle, I agree with you that there are California specific regulations at play here. My quote from the NYT article identifies some of them. But the in my old post I link to I talk about how the decrease and lack of slaughterhouses is in fact a nationwide problem. If the USDA removed or fixed these rules I have to believe it would ease up some pressure in CA, even though the remaining CA specific laws would continue to hold them back relative to the rest of the country.
Friday ~ April 8th, 2011 at 11:05 pm
Lyle
How do you distinguish the long term trend (120 years or so from short term trends) Recall that 120 years ago the refrigerator (actually ice chest car) railroad car was invented. As a result the big guys Armour Cudahay, etc built facilities in Chicago and in Omaha for example. They proceeded back then to drive the local slaughterhouses out of business. Back then there was no government regulation, it was that it was cheaper to move part of a cow by rail than the whole cow and to care for the live cow on the move to the east. The trend has continued from then on. In one sense the whole locavore movement is fighting history and indeed is fighting Adam Smith who favors specialization over everyone doing everything. Do any supermarkets such as Whole Foods offer the option (Don’t have one within 60 miles or more).
Further as many have observed in particular if you figure on rail transport not truck transport, its not clear that local slaughterhouses really save energy.
Much of the environmental movement is saying that the last 120 to 250 years of economic history are all wrong, but if so how come the standard of living is so much higher than 250 years ago?
Saturday ~ April 9th, 2011 at 10:44 am
govt_mule
In libertarian fantasy world, every Appalachian town has two coal mines so workers can choose whether to make less money is a safer mine, or vice versa. Every product includes complete, reliable information about its ingredients and manufacture, so consumers can make informed choices about what they buy. Products that are well designed, reliable, fairly priced and easy to use (iPod) are the norm, not the exception. Improvements in safety, quality of life and environmental protection usually result from manufacturers responding to consumer desires (the market), not regulation.
Unfortunately, the real world is a very different place. History shows that market forces don’t create safer coal mines, they create company towns where workers grow “another day older and deeper in debt”. History shows that Every single improvement we’ve seen in the last 100 years has resulted from government action and new regulatory agencies: FDA, EPA, CPSA, not market forces. Low quality products (American cars 70s – 90s, most things Microsoft) persist in the market for decades while better competitive products languish, and manufacturers fight tooth and nail to limit what consumers can know about their products. Markets just don’t work very well in many cases, whether you want to attribute it to human irrationality, asymmetric information, or alien mind control.
Regulation is efficient. It’s far more cost-effective for me to pay $0.001 per ton of coal to fund a federal mine inspection program than to spend the time researching whether the coal being burned to produce my power is mined safely. Same goes for drugs, food, car air bags, etc. I just don’t have time to research manufacturer’s claims, and I wouldn’t trust what I read anyway. There is a cost – Moonflower might find it harder to get her free-range organic ostrich meat on the shelves than she would in a regulation-free system. But that’s a cost I’m willing to pay in return for the benefit of knowing that meat on the shelves is reasonably free of pathogens and parasites.
Monday ~ April 11th, 2011 at 12:20 pm
Adam Ozimek
I definitely appreciate your Moonflower and free-range organic ostrich meat joke. Definitely. But you’re exaggerating the role of regulation in improving working conditions and product quality to a cartoonish extent. Consider how many times over wages have doubled in the last 100 years. Did regulation do that too? Or would workers have wages increase by m-fold times and yet not be able to demand better working conditions? It’s patently absurd. When it comes to mining in particular, your views are at odds with Price Fishback, the pre-eminent economist and historian who has, as far as I know, done more quantitative research on this topic than anyone else. See here, for starters http://bit.ly/axCRfk
Thursday ~ April 21st, 2011 at 10:40 pm
Stated vs Revealed Preferences: Green Products Edition « Modeled Behavior
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