Reevaluating Public Policy in Light of External Effects
When considering the impact of external effects such as air pollution on society, public policy often plays a crucial role in addressing these issues. However, two key factors – transactions costs and motivated reasoning – can sometimes lead to an overemphasis on externalities as a justification for regulation.
A recent article featured in Reason magazine by Geoffrey Kabat sheds light on these issues. Kabat’s study with James Enstrom in 2003 challenged the conventional wisdom surrounding the effects of secondhand smoke on mortality. The backlash they faced exemplifies how motivated reasoning can cloud scientific debate and policy decisions.
One common example of motivated reasoning is the argument that smokers lead to higher taxes due to healthcare costs, without considering the offsetting factor of shorter lifespans and reduced pension payouts. Kabat also highlights a recent study by the American Cancer Society that supports the notion that the cancer risk from secondhand smoke is likely minimal.
Moreover, the issue of transactions costs is often overlooked in the context of secondhand smoke legislation. Ronald Coase’s work emphasizes the importance of considering private resolutions before resorting to public policies to address externalities. In the case of secondhand smoke, the responsibility lies with property owners to regulate smoking in indoor settings where the issue predominantly arises.
While recognizing the existence of externalities and market failures, Kabat advocates for a balanced approach. He supports carbon taxes to combat global warming but cautions against motivated reasoning in policy discussions. Some proponents of “degrowth” use global warming as a pretext to push for a return to a simpler society, overlooking the efficiency of carbon taxes as a potential solution to address climate change without sacrificing modern conveniences.
