Monday, March 29, 2010

No Matter What, We Pay for Others' Bad Habits

New York Times article "No Matter What, We Pay for Others' Bad Habits" (March 29th, 2010) appears to misunderstand either the concept of externalitites or moral hazard.

I must admit I often feel like my colleagues who grouse about spending all day treating patients who do not seem to care about their health and then demand a quick fix. I do not relish paying more taxes to treat patients who engage in unhealthy habits. But then I remind myself that we all engage in socially irresponsible behavior that others pay for. I try to eat right and get enough exercise. But then I also sometimes send text messages when I drive.

The author appears to believe that because he engages in activities that have externalities, we should forgo a claim against others engaging in externalities that harm us. The argument appears to be that when we rob Peter to pay for Paul's extra doughnut, but then rob Paul to pay for Peter's cigarettes, things balance out. However, were we to have them each pay for themselves, neither might buy these goods that they don't value enough to spend their own money on.

This is to say that we introduce a moral hazard that causes less efficiency, and that this is not the zero-sum game the author thinks. People choose less efficient outcomes when they don't pay their own costs, and net wealth is destroyed.


  1. Incentives are not properly aligned in the health industry, on either side of the table. But I was hoping you'd lay into them for a different reason.

    Take out insurance and we would still have this general attitude of disdain that doctors have for their patients. They would still grouse about treating patients who don't take "proper care" of themselves.

    The problem with doctors is that they think we should be maximizing our health instead of our wellbeing. If you break your wrist skateboarding, the doctor's office takes on the atmosphere of the confession box, where you are supposed to admit to your sins and feel shame before they heal you (see also: the dentist).

    The doctors do not observe my preferences directly, and they butcher every opportunity to impute a revealed preference. They call me a fool for behaving contrary to the preferences they expect of me, and in doing so, they reveal their own foolishness.


  2. Corrections quite agrees. Indeed, the absence of the point is not due to its salience, but because it has been a relatively common refrain for us about doctors, both here

    and here

    We agree it is a mistake to think that life is the only goal for humans. We conjecture that the net discounted product of both quality and quantity is what individuals maximize, rather than simply quantity.

  3. thanks for the links.

    One could probably do a whole series on the manifestly self-important behaviors of various self-important professions. I have always been a bit torn here. I guess it's good for me if other people want to take some of their wage in the form of basking in glorified awesomeness.

    Ah, what's the difference anyways, all the self-importance in the world won't save them from the upcoming robot apocalypse.