From: Rafal Smigrodzki (rafal@smigrodzki.org)
Date: Tue Jun 24 2003 - 17:45:38 MDT
Alfio wrote:
What i think is that,
> without proper information, people often make the WRONG choice. And
> what's worse, they often have no way to know that they did.
### The disagreement between Alfio and John Clark prompted me to make the
following observation (or maybe just a restatement of the obvious):
difficulty accessing truthful information about products in the free market
is caused by the difficulty in making a profit on certain types of
information.
Let's consider a manufacturer who has information about his product, which
if released to customers would put him at a disadvantage compared to other
manufacturers (e.g. a loss of 1000$ in sales). This loss is an
expression/summation of preferences of all the customers, therefore we can
assume than for N customers, the average customer will be willing to spend
somewhat less than 1000/N $ to know the truth about the product. If an
independent provider of information could produce and sell the product info
at a price 1000/N, such information would be provided. However, currently it
is not easy to prevent the free rider problem regarding information. In
practice, the purveyor of information would have to price his information
well below 1000/N. At some point, especially with expensive types of
consumer information, such as results of clinical drug trials, it would be
impossible to produce information profitably.
This is the problem with the free market approach to consumer information -
the difficulty making a profit on a specific class of information - that
which is both expensive to replicate and harmful to manufacturer if
released. Information which is either cheap to replicate, or beneficial to
manufacturer will be either provided by information makers (Consumer
Reports, etc.) at a very low price, or gratuitously by the manufacturer.
The statist solution to the problem is seemingly simple and effective -
manufacturers are forced to provide the information they already have
(nutrition labels), or if they do not have it, they are forced by law to
produce it (e.g. pharmaceutical companies) in order to be allowed to sell
products. However, this solution does have some problems: the feedback loops
between players in the game, manufacturer, customer, politician, and
bureaucrat, are very long, tenuous, so that information will be provided in
an inefficient, unstable way. Also, the opportunity for some players to
avoid consensus-building (as it happens every time a vote is not 100% for or
against a proposition), leads to dangerous restrictions of freedom in the
long run.
The right (IMO) solution, use of transparency, trusted devices, and other
technical measures to improve the marketability of customer-desired
information, is frequently rejected by both libertarians and statists. The
former are worried about the Big Brother, the latter are uncomfortable with
too much freedom for both the manufacturer and the customer to choose who
will be harmed and how. The point for me is of course the long-term
maximization of material affluence of the average citizen (as a proxy
quantitative measure of the ability to indulge wishes, i.e. freedom). Such
an abstract measure of utility doesn't agree well with built-in emotional
reactions to the threat of physical violence (motivates some libertarians),
or a feeling of lack of control over the environment (drives the statist).
Ah, well, maybe this idea's time will come eventually.
For the time being I am for mandatory nutrition labels if and only if the
information released has measurable survival-related value (e.g. content of
substances proven to be poisonous, such as trans-fatty acids), otherwise
voluntary labeling must do (as in the case of GMO, where the information
does not have relevance to individual survival). When somebody hides from me
information and thereby my life is endangered, in reciprocity I feel
justified in threatening his own life, if this is the only way of saving
mine.
Rafal
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