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Well, is that fair?

In our measures of welfare in economics, we pay careful attention to the impacts an exchange has not just on those parties who are involved in the exchange, but also to third parties who may be receiving benefits or incurring costs as a result of Person A exchanging with Person B.

What economics tends to not do is to consider the preferences of Person C, who is not impacted by the transaction, in our measures of welfare. This is not to say that most of policy ignores Person C, in fact it is my belief that a good chunk of policy considers the feelings of Person C almost to the exclusion of A and B. Consider kidney markets. Again, I do not wish to get into the details here, just an illustration. By allowing the sale of kidneys, we will impact the well-being of potential donors of kidneys and potential recipients of kidneys. But there are tens of millions of people whose lives will not in any material way be impacted by the sale of kidneys outside of their objecting to living in a world where kidneys are handled in any way other than making people wait in line for them. Whatever their arguments are, good or bad, I do not care. What I care about is the obvious fact that those arguments receive weighting in our “society’s” welfare functional and in fact kidney law is predicated on satisfying those preferences.

And when you see some criticisms of market transactions or efficiency measures of economists, we inevitably come across an appeal to, or an appeal from, third parties who do not have standing in the transaction (remember, we already model out externalities, so my focus here is on people beyond that scope). Perhaps a way to incorporate these preferences legitimately into welfare analysis is to argue that the policies we enact today may impact the values and costs that non-participants may receive in the future – but then this can be very generalized to any situation.

What I find interesting is that the voices and opinions and preferences of only SOME portion of Persons C tend to be included when we are deciding thinks like legalizing drugs, or relaxing zoning restrictions, or expanding school choice and such. While it seems like the argument, “I just can’t imagine living in a world where the government does not provide “free” quality schooling to every boy and girl” actually gets considered, how often does the opposite sentiment get considered and used to enact policy? For example, some non-affected third parties may absolutely delight to be alive in a world where zoning restrictions were relaxed, they may have extremely strong moral feelings in favor of legalizing kidney compensation, and  so on. Not only is it socially uncouth to express positive preferences for these sorts of things, serious discussions of these and other policies rarely, if ever, openly consider that there are millions of people who share those preferences. It’s the morally opposed that are more “vocal” than the “morally supportive” … I wonder why. Perhaps it’s a case of the status quo bias, but I suspect something else is going on.

One Response to “Well, is that fair?”

  1. Alex says:

    I don’t think I’ve met a single serious person who thinks psychic benefits or costs to C should influence policy.

    Then again, I’m not in the policy-MAKING world

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