Lene, one of my cobloggers at A Better Earth, points to an interesting paper called “Sentiments and Acts Towards Genetically Modified Foods.” The study examines consumer behavior in the Netherlands after the government required foods with genetically modified ingredients to be labeled as such:
Because the Netherlands was one of the first EU countries to enact mandatory labelling, it provides an excellent case study for examining European consumer response…
Based on the results of the various attitude surveys carried out during the period of interest, one would expect a sizeable market segment (anywhere from 44% to 85% of Dutch consumers) to avoid GMFs if confronted with the choice. Likewise, one would expect Dutch consumers to be armed with information about GMFs based on their high level of awareness, knowledge, and intense media coverage. As indicated earlier, Dutch consumers were indeed confronted with such choice for a meaningful number of processed foods. The question then is how they actually chose?
What do you think they did?
Netherlands consumers did not significantly change their purchasing behaviour towards foods that received labels indicating the presence of GM ingredients. Nor did they alter their purchasing behaviour towards such foods after the labels were removed nearly three years later. There are no abrupt adjustments or gradual shifts away from GMFs.
That’s fascinating. The implication is that consumers responding in surveys are not good at predicting what kind of labeling and information they will actually demand in the marketplace. Yet those kinds of surveys are what justify a wide variety of regulations. Origin labels are being considered for meat because consumers supposedly want to know where their meat is coming from. Diageo says alcoholic beverage makers should be forced to put nutritional information on their bottles because customers demand it. Smoking ban supporters defend their policies on the grounds that bars and restaurants refuse to go smokefree in the face of widespread desire for such establishments. Are those expressions of consumer sentiment reliable?
I’ve argued in the past that they are not (meat labels here, alcohol here, smoking bans here). I believe that these cases of “market failure” are actually cases of “introspection failure.” Responding to survey questions removed from any actual trade offs, people overestimate their desire for information and their aversion to bad things like smoke or genetically modified foods. Their real, revealed preferences in the market are actually much more moderate. In the paper above, even when the costs of avoiding GMFs are virtually zero, consumers didn’t do so. If that’s a typical outcome, regulations based on publicly expressed opinions are bound to exceed what consumers actually demand, needlessly increasing costs or reducing consumers’ options.
This paper only applies to GMFs, but the authors provide a thorough discussion of the many methodological problems that undermine consumer attitude surveys. I urge you to read the whole thing and decide if they can plausibly be extended to the cases above. I think that they can.
So in summary of many blog posts from the past few years, here are three reasons the nanny state grows beyond what consumers really want:
1) People are ignorant of their actual preferences. (If you’re not facing real trade offs, it’s hard to imagine what you’ll actually demand. Introspection is a poor and easily biased guide.)*
2) People want to hold “good” preferences. (If supporting smoking bans, nutritional info, or GMF labels is the politically correct thing to do, you’ll respond that way in a survey, but not when those beliefs carry personal costs.)**
3) People will gladly externalize the costs of their preferences onto others, exaggerating them if they’re weakly held. (If you don’t like smoking, you may not be willing to bear the cost of going to the bars that don’t have it. But if by passing a ban you can impose the costs of your preference onto other people, you’ll exaggerate your aversion to smoke.)
What do you think?
* I’m treating revealed preferences as true. Alternatively, one could say that introspective preferences are true and consumers inexplicably ignore them at the grocery store, even when the monetary and informational costs are very low. That doesn’t strike me as a very sensible or useful interpretation.
** See Bryan Caplan’s excellent book The Myth of the Rational Voter for a lot more of this kind of analysis of democracy.