Tuesday 18 December 2012

Solving for equilibria

The Greens think that poor people can't solve for the equilibrium. Voluntary labeling of healthy foods has been proposed, with one option being "traffic light labeling". Here's Mojo Mathers:
If you are a food manufacturer of a particular product and look at the criteria and find out that your product will get a zero for health (the lowest score possible proposed in the report), would you still say “yes! Sign me up, that will help sales”?

No, you wouldn’t.

So a voluntary scheme will just end up on the healthy foods, and consumers who don’t currently read the back of labels will still not know which foods they should think twice about before purchasing."
This part of the reasoning is exactly right. Under a voluntary disclosure regime, the best label first. The first runner-up labels second to avoid being pooled with the second and third categories. In the end, everyone labels except those who would receive the worst ranking.

But we tend to expect that everyone can solve this kind of model: that the absence of a "yellow light" or "green light" label conveys as much information as the presence of a "red light" label. I suppose it's an empirical question. I prefer voluntary regimes where organic, GMO-free, dolphin-safe, or other standards-meeting manufacturers can label their products as such and customers can infer what they like from the absence of a label - and especially where some mandatory labels can wind up doing harm.

Equilibrium solution the second: the inefficient dining decision. Matt Nolan finds himself at a family dinner where, nobody wanting to be the only one to order a large dessert and nobody consequently being first-mover, everyone winds up in a sad coordination failure. Knowing the risks of such sad equilibria, and knowing that others usually feel the weight of social convention and social pressure more keenly than I do, I try to take on these first-mover costs myself by ordering the dessert and the drink. It's efficient that I do so, and I get to feel good that I relieve others of the burden of feeling bad about being the first one to order. I love the happy confluence of my interest and the social good in these kinds of cases.

Previously: Efficiency over Etiquette

1 comment:

  1. I'm not a fan of traffic light labelling at all - its been proposed and dropped for financial products because of the inherent problems of trying to ascribe a one-size-fits-all solution to what is a complex problem - i.e. which financial product is best for my circumstances...

    Also, its pretty clear that a bag of crisps is highly likely to get a big red sticker if this were implemented because its clear that a bag of, say, salt and vinegar crisps are not intended to be 'healthy' by the manufacturers. They are in the parlance of Sesame Street 'sometimes food'; treats if you will...

    So when it comes to crisp buying the punters are more likely to favour the red stickered product simply because they want the treat and don't want the burden of being 'healthy'.

    As the saying goes; we do good so that we can do evil with impunity. Food is no different.