Friday 18 November 2011

Psychic externalities

Specify that I receive large psychic benefits when prudes are compelled to purchase pornography - their discomfort brings me mirth. Specify further that lots of people share these preferences, but transactions costs prevent us from getting together to pay prudes to go and purchase pornography. In such cases, regulations mandating the purchase of pornography can be efficient.

At least that's the lesson I take from Chris Auld's description of a paper by Curry and Mongrain. The paper discusses blue laws, like those in Alabama, where prohibitions on the sale of vibrators may be efficient: the prurient make their purchases discreetly by mail-order and prudes are shielded from the existence of sex shops. If it's the transaction's visibility that is the main cause of prudish distress, then regulation ought target visibility rather than the transaction itself.

I'm happy to admit the possibility of efficient regulations of this sort in theory. But there is absolutely no reason to expect that real world morality regulation has any efficiency basis. Even evidence of majority support for the regulation is wholly insufficient: meddlesome preferences are much cheaper to indulge at the ballot box than they are in the market. To wit: a voter need only receive epsilon disutility from a prurient act to favour banning that act, while the ban can impose very large costs on those thereby constrained.

Logrolling sometimes helps us in this kind of case: if the median voter only weakly supports a measure that would impose heavy costs on a minority, the minority can pay the majority off through other policy concessions, so long as folks' minority/majority status isn't constant across all policy dimensions. Policy outcomes then move to reflect mean rather than median voter preference and are closer to efficiency. But where the minority bearing policy costs would also incur sanctions from the majority if identified as part of the minority group, those trades seem a lot less likely to obtain.

I'm reminded of Jennifer Roback's work showing how southern racists were able to achieve at the ballot box segregation outcomes they were unable to achieve in the market. To recap: racist southern whites wanted segregated streetcars. But it was too expensive for the streetcar companies to run segregated cars: the increased ticket revenues from white racists didn't compensate sufficiently for lost black custom and, especially, increased running costs. White racists effectively weren't willing to pay enough for tickets to segregated streetcars, so the market didn't provide them. But casting a racist ballot is individually costless. And so streetcar segregation was mandated through regulation.

When I see folks going to the ballot box to enforce their preferences over other peoples' activities, my general presumption is that transactions costs isn't what's keeping meddlers from seeking less coercive options. The ballot box is just cheaper when a majority has weakly meddlesome preferences, regardless of efficiency.

If I had to bet, the Alabama ban had less to do with the psychic disutility experienced by Alabamans on driving by a sex shop and more with helping to ensure a separating equilibrium in migration.

And, for the libertarians out there, purely free market systems aren't immune to meddlesome preferences either: they're just more likely to indulge the strong preferences of meddlesome minorities than they are to indulge the weak preferences of meddlesome majorities.

But if Curry and Mongrain are right, Auld points a way forward in liberalization:

The insight here helps to explain morality laws more generally. Laws against gambling, drugs, and prostitution often take the form of prohibiting various transactions or activities in public rather than outright prohibitions, and enforcement is often targeted at the open display of these behaviors. People commonly violate morality laws, but they also exhibit discretion in doing so, as the model predicts. And in times and places where puritan ethics are more prevalent, there are more and stronger laws against private behaviors which violate puritanical norms.
These insights also suggest ways in which reforms of morality laws might be politically feasible. First, laws which attempt to enforce discretion rather than prohibit use may be acceptable to people who experience psychic externalities from others’ use. Make vibrators legal, but prohibit billboards advertising vibrators. Make drugs legal, but only to be sold in plain packaging from government outlets. Generally, permit the behavior which causes the psychic externality, but to whatever extent possible make it illegal not to be discreet when engaging in that behavior.
A second way to reform policy in the long run is to attempt to change preferences. Puritan preferences are anti-social: The puritan benefits when others are harmed by laws reducing behaviors the puritan considers immoral. Everyone becomes better off when anti-social preferences become less prevalent, just as everyone is better off when more people have pro-social preferences. In papers such as Dixit (2008), pro-social norms endogenously evolve through education. In the long run, reducing anti-social norms, through education or through other mechanisms, may be the only feasible way of reforming morality laws.
Auld's likely right that marijuana legalization has a better chance of happening if coupled with bans on public display; purchases then take place by mail-order and consumption in private.

But imagine if New Zealand's homosexual law reform in the 80s had been advanced by reformers who thought their most likely chance of success lay in legalizing homosexuality, but only in private; public homosexual displays of affection would remain illegal. It's certainly plausible that homophobic opposition to legalization was more motivated by psychic disutility experienced by prudes on seeing public homosexual displays of affection than by the knowledge of what might go on behind closed doors. But legalization and openness helped build the environment in which civil unions became possible - those with mildly meddlesome preferences realized they had friends who were good people and who were homosexual. And opposition eroded. Requiring that acts earning prudish disapprobation remain closeted hinders the erosion of anti-social preferences. It still might be best policy where alternatives are truly blocked. But it sure ain't great.


  1. Interesting thoughts, Eric. The Curry and Mongrain paper considers a planner's problem rather than a political equilibrium. I agree, and I think the authors would agree, that in practice morality laws are often inefficient even if we take "psychic externalities" fully into account.

    Phil gave this paper at Calgary and there was substantial flak from the audience (only some of which came from me) over the purported efficiency of laws internalizing this sort of externality. Phil was very clear that they intended the paper as a positive analysis of law, not a normative argument in favor of morality regulation.

  2. @Chris: I like the idea of that half-way measures might help liberalize, but I worry that they then could get us stuck at local optima. But that's an empirical question I suppose.

    I'd taken the paper more as an existence proof for efficient regulations of this sort, not as a demonstration that any real-world ones are efficient in reality. But I worry that these kinds of demonstrations have a way of being used by advocates of inefficient policies as justification for them. How many times is the terms of trade argument used as justification for protectionism relative to the number of cases in which it would actually apply, for example?