Tag Archives: social regulation

Nudges or Shoves?

David Brooks writes in the New York Times:

I’d say the anti-paternalists win the debate in theory but the libertarian paternalists win it empirically. In theory, it is possible that gentle nudges will turn into intrusive diktats and the nanny state will drain individual responsibility.

But, in practice, it is hard to feel that my decision-making powers have been weakened because when I got my driver’s license enrolling in organ donation was the default option. It’s hard to feel that a cafeteria is insulting my liberty if it puts the healthy fruit in a prominent place and the unhealthy junk food in some faraway corner. It’s hard to feel manipulated if I sign up for a program in which I can make commitments today that automatically increase my charitable giving next year. The concrete benefits of these programs, which are empirically verifiable, should trump abstract theoretical objections.

I agree with Brooks that arguments over nudges should be based on empirical evidence rather than a purely theoretical discussion. So let’s examine the evidence.

As I pointed out in a recent op-ed:

On the federal level, energy efficiency regulations costing billions of dollars are justified by claiming to correct consumers’ irrational choices. Regulators claim that given the lifetime energy savings, rational consumers would demand more efficient vehicles and appliances voluntarily. They take the fact that many consumers are willing to forego efficiency in favor of other attributes, such as style, safety or lower upfront costs, as a clear proof that consumers are irrational. Hence, regulators force consumers to save by reducing their choices.

Below is a list of recent major federal regulations that use behavioral economics arguments to justify government intervention in markets. While far from exhaustive, it should give you some idea as to the magnitude of “intrusive diktats” that are justified using the nudge philosophy. Note that these regulations are not nudges. This is hard paternalism. Federal regulations do not gently push you towards better choices or give you a chance to opt-out. Contrary to Brooks’ assertion, it is not only in theory that “gentle nudges turn into intrusive diktats.”

For comparison, I can think of no major federal policy that actually nudges. When one looks at the evidence, federal regulators give consumers few nudges but plenty of shoves.

Agency Rule Cost (millions)
EPA/DOT Control of Greenhouse Gases from Light-Duty Vehicles

$176,995

EPA/DOT Greenhouse Gas & Fuel Efficiency for Medium/Heavy Duty Vehicles

$9,600

DOE Energy Conservation Program: Small Electric Motors

$514

DOE Energy Efficiency Standards for Pool Heaters and Direct Heating Equipment and Water Heaters

$1,012

DOE Energy Efficiency Standards for Commercial Clothes Washers

$23

DOE Energy Efficiency Standards for Residential Refrigerators and Freezers

$1,849

DOE Energy Efficiency Standards for Microwave Ovens

$1,341

DOE Energy Conservation Program: Energy Conservation Standards for Fluorescent Lamp Ballasts

$425

DOE Energy Conservation Program: Energy Conservation Standards for Distribution Transformers

$289-$351

DOE Energy Conservation Program: Energy Conservation Standards for Battery Chargers and External Power Supplies

$247

DOE Energy Conservation Standards for General Service Fluorescent Lamps and Incandescent Reflector Lamps

$77-$139

————————-

Addendum: Some of these costs are annualized; some are total. There is no consistency in the way they are reported. Agencies report one or the other but not both. In addition, in an earlier version of this post, two figures were transposed. I have now corrected this.

Do We Need Speed Limits to Drive Safely?

A recent RegBlog post discussed a paper by van Benthem, which suggested that the social costs of higher speed limits outweigh their benefits. The paper examines the data from a natural experiment – the repeal of National Maximum Speed Law in 1995 that led many states to increase speed limits – to make its point. Yet, both the RegBlog post and the paper miss the larger question: lower driving speeds may be safer, but do we need the government-imposed speed limits to drive at safe speeds?

In the study, van Benthem finds that “a 10 mph speed limit increase on highways leads to a 3-4 mph increase in travel speed, 9-15% more accidents, 34-60% more fatal accidents.” Thus, he concludes that the difference between private benefits and social costs of faster driving provide a strong rationale for speed limits (while the paper looks at both traffic fatalities and increasing pollution levels, I focus on traffic safety. As the RegBlog post points out, there are alternatives to speed limits to deal with pollution, e.g. emission standards).

However, there is a natural experiment that van Benthem does not discuss: only a third of highways in Germany (mostly around urban areas) have permanent speed limits. On the remaining portion of highways, drivers choose their own speed. The data indicate that there is little difference between traffic fatality rates on highways with and without speed limits. In fact, over the last 20 years, the number of highway traffic fatalities in Germany decreased by 71% despite a 17% increase in number of vehicles on the road and a 25% increase in traffic flow. At 5.6 deaths per billion vehicle-kilometers driven, Germany’s traffic fatality rate is lower than the US rate (6.83) or even France’s (7.01). Apparently, German drivers are able to choose safe driving speeds even without government prodding.

Entrusting drivers with responsibility for their own safety and safety of those around them is behind another natural experiment adopted in several European cities – the concept of shared spaces. These cities are doing away with a thicket of street signs, streetlights and in some cases even sidewalks on some busy intersections. Instead, cars and pedestrians share the road, negotiating their ways as they go. While this may sound like a disaster waiting to happen, the cities report fewer accidents and increased foot traffic in businesses along the roads. The key to the concept’s success comes from drivers’ psychology; drivers compensate for lack of predictable traffic rules by paying attention to their surroundings and being more considerate to others. As Hans Monderman, a proponent of shared spaces, points out “The many rules strip us of the most important thing: the ability to be considerate… The greater the number of prescriptions, the more people’s sense of personal responsibility dwindles.”

For social regulation proponents, stringent rules are the go to response to all social ills. Yet, as European experiences with traffic demonstrate, regulation is not the only and may not even be the best alternative. Crazy as it may sound to some, treating people as responsible adults and trusting them to make the right choices may in fact lead to better social outcomes for all.