Dave sent me an email yesterday, alerting me to the fact that Nerlove had added this article to his regular bulletin board. The link is to a short review on a book by Steven Landsburg. Notice that there is a link to the entire first chapter in the left-hand margin.
The first chapter weighs in (sort of) on a debate that sprung up long ago in the old Tim/Mike/Chad/Beat office on externalities. I argued that the government should subsidize consumer purchases of condoms since there was a consumer-to-consumer externality (I didn't call it that at the time; I lifted the "consumer-to-consumer" part from Just, Hueth, and Schmitz) that accrued to all sexually active people every time a single party used a condom.
An interesting counter argument was forwarded by Dave (others maybe, but I don't remember well) that because each participant in the sex market participated despite known risks and could effect their own risk through partner selection and use of a condom themselves, that there was no externality present. The idea here was that so long as participation was voluntary (the costs of participation and thus the external benefits from decreased disease-spreading were avoidable) an externality was not quite the right tag to place on the disease suppressing effects of condom usage.
At the time I didn't find this to be a compelling argument, but I turned to a few sources that gave weak support to Dave's claims. No source confronted the voluntary/unvoluntary nature of the external effects, but all of the examples I could root out of a good text seemed to implicitly support Dave's categorization.
The Landsburg argument does not resolve anything, per se. But he does use an externality argument to arrive at the conclusion that disease-free people should all have more sex. So that's pretty cool.
Dave and I have exchanged several emails filling out our positions. Let's continue this discussion using the comment section of this post.
Feel free to include your own definition of an externality. Here is the Just, Hueth, and Schmitz definition, for good measure:
"An externality is defined as the case where an action of one economic agent affects the utility or production possibilities of another in a way that is not reflected in the market-place. External effects are often classified into the effects of consumers on consumers, producers on producers, producers on consumers, and consumers on producers..."
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4 comments:
Sex sells. People giggle. Instead of thinking critically about the underlying issues of choice and scarcity, wandering minds consider gains from additional sex. This confusion is indicative of why environmental economics is doomed to being a stunted spinoff of economics rather than a potentially robust field of its own. Without universal acknowledgement of core concepts (like externality, possibly the most confused concept in all of economics), positive results are unlikely to follow. Recent evidence of such confusion can be found here: http://www.env-econ.net/2007/09/the-buzz-about-.html.
Since a public policy is being proposed, as a taxpayer I'd like to identify the efficiency loss in the current scenario. Is it that people don't have enough sex? They have too few sexual partners? What makes us think that policy action is needed?
My next question is whether or not a policy change is apt to make a difference. What is the (point) elasticity of demand for sex with respect to condom prices? Or condom usage? Ask the same question a different way: a young buck is in a trendy singles hangout. With a condom in his pocket, and with a room full of potential sexual partners knowing he has a condom in his pocket, is he more likely to get laid? Or is the extensive margin much greater in some other dimension, like clothing, body odor, or mustache length.
Of course, the final torpedo and central issue is that people choose to have sex. They choose when and with whom. Landsburg totally ignores this, just as most environmental economists ignore the role of choice with respect to environmental phenomena. If there is pollution, it is our sacred duty to impose a policy to avoid it. Likewise, if we can dream of some theoretical reason to impose a policy, then we have jobs, right? Never mind that people have been having sex for thousands of years without our help, are apt to continue without intervention, and the gains are apt to be small and accrue to a small percentage of the population.
I disagree with Tim about the point of all this. While Landsburg may have been doing nothing but trying to be cute, the issue is whether there is a legitimate "need" for intervention. Of course if there are competing "needs", then it is an empirical issue whether or not this need is large enough to warrant attention. So we focus here on whether there is at least a theoretical need.
I say there is. As I argued previously, there are social costs to condom purchase that almost certainly outweigh the nominal cost of a box of condoms. Often in places like CVS the condoms will be under lock and key. Why? Because they are so often stolen. Why are they stolen if they are relatively cheap? Because some people who are able and willing to have sex are too embarrassed / not mature enough to purchase the condoms at the counter. If the government purchased condoms and put them out on the street (or in every bar) in anonymous bins, then the real costs of obtaining condoms would be reduced. This would cause more people to use them and would effect a gain both to all those immature consumers of sex, as well as those who are mature but are connected through a chain of partners to someone who had an indiscretion at some point in their lives.
The idea is that there IS an externality present (check) and that the elasticity of condom usage with respect to TRUE COST (true cost= nominal cost + social cost) is probably high enough to matter. So we have scope for intervention.
At least that's where I came from when I stepped onto the soapbox.
Let's elaborate on the other issues we have about externalities in a separate post. Maybe Timmy Tubes can edit his own comment into a post on externalities in environmental economics.
I remain unconvinced that an externality exists in this case. Mature or not, sex partners engage voluntarily. Choosing not to use a condom is a private choice in each encounter. Electing to forgo condom use with an unfamiliar partner strikes me as a risky behavior. The real issue is that using a condom reduces the value of the experience for many participants.
Baumol & Oates use a similar definition of externality to Just at el., but make the very important additional observation that almost all externalities arise in the absence of well-defined property rights (it may well be that JHS do as well but that it didn't get cited above). The other possibility is high transaction costs, which is a root cause even if property rights are defined. In this case property rights appear to be well-defined.
Behavior in low-information environments appears to be a valuable topic for economists (and other social scientists) to research.
If people engage in privately risky health behaviors as a result of incentives created by social insurance (e.g., Medicaid), that appears to be a related issue that is within the scope of risk preference behavior. It might also be an interesting research topic.
While the persistence of low condom usage rates is curious, I remain convinced that externality is an unproductive framework to understand the issue since bilateral private choice prevails. Certainly the pervasive misunderstanding of the concept is sufficient warning.
I disagree that this is not an externality for the reasons you have listed. Neither the voluntary nature of sex nor the issue of property rights play a pivotal role, in my opinion.
But you are right that the more important research will be into exactly why usage rates are low and the externality argument is not central to this line of inquiry.
All the same, I think that putting the things out for free at every bar would go a long way.
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