That little libertarian questionnaire made me think again about the oh so interesting question of safety regulation. The first inclination of a good small government economist is to say “thats ridiculous of course they should have no regulations on safety”. This is an area though where I think we may need some regulation (though it could be state, local, or even company regulation if the company is brave enough).
We’ll use the safety helmet requirement for example. If there is no requirement then there will likely be a machismo factor, or a coordination failure. “I don’t need a helmet” in other words it maximizes individual utility to not be the only one wearing a helmet, though they’d like to. There is a factor of worrying about being made fun of for wearing it. “hey helmet boy, afraid a wrench is going to fall on your head”, the risk of this is high enough to outweigh the benefit of wearing the helmet. Every worker you can think of having this internal struggle, thus we have an equilibrium where few to none wear helmets. Regulation can serve to correct the coordination problem with very little inaction costs. Few refuse to wear it cause they won’t be made fun of for wearing it, and their utility is better for they have no fear of being mocked and they get the utility of better expected safety. An improvement I’d say. “They could just self regulate right, agree all together to wear helmets” no that is the reason it is a coordination failure problem. chances are no one has the incentive to initiate the self-regulation. Imagine the taunting “little poor jimmy wants us all to wear a helmet, throw your wrench at him”. Poor Jimmy. I think the role of govt is to do for society what society would like to be done, but can’t do on its own. This is one of the few times I’m for regulation. There are actually papers written on this exact subject. If any is HIGHLY interested (your utility of knowing the paper is greater than the hassle for me to dig through my old labor papers) Ill look it up for you.
Constrained Optimization 
January 31, 2007 at 10:53 am |
Perhaps it is true that helmet laws help people without self-confidence, but it does so at the expense of people who really don’t want to wear helmets. Why should they suffer? Do you really think the purpose of government is to help those who never learned how to deal with peer pressure?
I have doubts about your coordination failure story, but even if it were true, just because a policy is Kaldor-Hicks efficient does not mean that the government should do it. Your idea of the proper role of government, “to do for society what society would like to be done, but can’t do on its own,” is highly dangerous and basically socialist. Society doesn’t want anything, because society is not a person. Any statement about what society wants presupposes interpersonal utility comparisons. Once you accept utilitarianism, the road to socialism is a short one.
January 31, 2007 at 12:04 pm |
Safety benefits are primarily internalized. Risk tolerance is a personal preference. I deny that this is a co-ordination problem as the effectiveness of a helmet is not determined by the total number of helmets worn.
January 31, 2007 at 12:35 pm |
I hear and respect both of your arguments though I disagree. But this poses a good question hear, which relates to Eli’s earlier post as well. What is the role of Government? I will post this to the main blog as well for a forum for those beliefs.
January 31, 2007 at 12:42 pm |
A co-ordination problem is one where unless all act together, one’s individual action is meaningless. Helmets are not a co-ordination problem because the benefits from wearing a helmet are independent of whether or not everyone wears a helmet.
January 31, 2007 at 2:14 pm |
Not exactly, For more infor I’d suggest you read or go through the paper Tacit Coordination Games, Strategic Uncertainty, and Coordination Failure By Van Huyck, Battalio and Beil. http://www.jstor.org/cgi-bin/jstor/printpage/00028282/di971045/97p0017w/0.pdf?backcontext=page&dowhat=Acrobat&config=jstor&userID=81aefe04@gmu.edu/01cc99331300501b6776f&0.pdf On JSTOR at this link. if you look at p.238 You see a good table that exemplifies a coordination failure problem. IF all say 7, they all get the highest payoff of 1.30 but if you say 7 and someone says 1 (i.e. you wear a helmet and someone else doesn’t) you get .1 and they get .7 (they laugh at your expense so they are better off than you even though you are wearing a helmet and they aren’t) the threat of one person not wearing a helmet and making fun of those wearing a helmet makes people worry enough to not wear theirs. This isn’t the article actually talking about the helmets, but is a great paper. Read it and enjoy :)
January 31, 2007 at 2:18 pm |
The benefits of wearing a helmet may be there regardless of whether others do, but if wearing a helmet when someone else doesn’t causes another negative effect (being made fun of) that outweighs the helmets benefit, then it is a cooridination issue. In my example, the benefits are independant but the negative effects are not independant of whether everyone wears or not. The overall effect is dependant on the number wearing a helmet.
January 31, 2007 at 4:13 pm |
I repeat, this is not a co-ordination problem. You can only claim that the situation is Kaldor-Hicks efficient.
A coordination problem is a multi player game where the Nash equilibrium is to defect. The best social outcome would be to cooperate but the best personal option is to defect. This can also be thought of as a prisoner’s dilemma.
February 1, 2007 at 12:24 am |
Re-reading the post, I think I know where our disagreement comes from. At the very beginning, you said the following: “This is an area though where I think we may need some regulation (though it could be state, local, or even company regulation if the company is brave enough).”
Seeking to justify safety regulation, you invoke helmet laws. In doing so, you create a scenario with extreme preferences where a single defection eliminates all gains from safety. The very parameters of your argument assume a co-ordination problem where none existed before.
I am cautious of such arguments because I personally can create parameters that justify anything. ANYTHING. Using externalities, co-ordination, and extreme preferences, I can create an argument that justifies anything and everything.