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11/27/2005

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Here is Judge Richard Posner's post on avian flu.

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Dan C

I was told that Abbott Labs became the company they are, in part, because they did not have to honor German patents during WW II. Clearly, new events often change old relationships.

Any company that makes a flu virus must understand that if a true pandemic starts, countries will ignore international patents. The price they charge must reflect this reality.
Judge Posner, perhaps correctly, argues that we are not dealing with the pandemic threat - for a variety of reasons - but we must take steps in the long run and short run to fix the problem.

First, Judge Posner wants to create a market incentive for vaccine creation and production. He argues that if we lower a cost of doing business, the risk of lawsuits, we will encourage firms to enter or increase production. Perhaps, but Judge Posner doesn't sound convinced that legal reforms will encourage major structural changes in the industry. You might see some firms taking greater risks to get products to market faster, but most firms will assume, I think correctly, that class action lawsuits would still be a cost of business. Still, if you think that the vaccine companies are competitive firms that just need higher profits to increase output, then perhaps lowering costs will increase output.

Perhaps greater government funding, even international funding, for basic research is the answer. It would be expensive and seem wasteful, most of the time, but every thirty years or so we might be thankful. Perhaps in the long run we will find ways to quickly make vaccines, and find ways to quickly ramp up production. Private firms may not have enough incentive to do this type of research, and we should give grants to research universities. Of course that is a long run approach.

Judge Posner then writes of compulsory licensing.

I assume that the marginal cost of additional vaccine is small - a question of capacity rather then research. So firms should be willing to license for a rather small per dose fee. I assume that firms are reluctant to license technology because if other companies gain the knowledge to mass produce vaccines, they may use that knowledge to become competitors. (backwards integration) I would assume that flu shots would be a big business for years following a pandemic.

So what would a monopolist do? Price discriminate across countries. Contract with subcontractors for regional monopolies and concentrate on the source of their monopoly - basic research. Create non-compete clauses with strong international sactions for subcontractors who violate. Sign long term contracts with countries to produce vaccines - perhaps with the ability to market vaccines that government supported labs produce - to sustain their monopoly into the future.

Monopolies charge higher prices and produce less output then competitive firms. We want the monopolist to increase production. Lowering his MC curve will increase production and lower prices. So how do we do that?

Bubba O'Riley

I have seen the opinion a few times regarding the economic perspective of this site. In relation to issues of health care, I think it's important to consider all perspectives, because it's all well and good to be cavalier about statistics related to a deadly flu until you are the one hacking up a lung and facing death head-on. I don't believe even the most disciplined economist will be comforted by the truisms of Darwinian theory while they are choking for their last diseased breaths.

bronxite

interesting post. the psychology of policymaking is especially interesting. daniel kahneman or amos tversky identified an especially relevant heuristic (sadly, the name of which i'm forgetting) - but, in essence, people have an extremely difficult time distinguishing between very small probabilities and a 0 probability. this is so even when the risk associated with a low probability-event is extremely salient

The term Framing is used by Kahneman and Tversky to describe this bias. Camerer mentioned in a recent lecture that this effect tends to be more serious in men than women.

djcbuffum

I'd just like to point out that vaccination is in the public interest, not just the interest of those people vaccinated. Think of polio.

W

Mike Petrik: If a company invests billions of dollars with the hope of creating a marketable vaccine that it can sell for more billions of dollars, it will be pretty unhappy if the government decides that the vaccine's chemistry is not property that is owned by the company and instead may be copied by others who did not spend the billions on r&d. Indeed, any company that anticipates this treatment will likely refrain from making the necessary r&d investments.

That is only true if the government doesn't offer a large enough award, which is a bold and unfounded presumption to make! So long as the prize-award for a cure to a particular strain of avian flu is on cent more than the cost to produce it, a company has an incentive to research and develop. (I would note that the prize-model has been proven to work with private space flight.)

The italicized critique also ignores that universities have an interest in government money, and they have research facilities as well. As well as endowments. And, a prize is also an award and scientists like recognition and fame in addition to cash.

One could easily make the argument that my solution is less wasteful than two companies racing to be first to get a patent, a situation in which the expenses of the second-runner up are not recouped. My way, anyone who has invested in producing a cure for one strain of avian flu can, at minimal cost, simply convert those dollars into a cure for another, somewhat similar strain, and claim a prize that way (as I said there can be multiple prizes). By contrast, if you had a privately owned patent, similar strains would not be individually patentable: lawsuits over whether the second-runner up has infringed the patent-winner's patent and whether the patent is valid would clog the Federal Circuit; research and devlopment costs would skyrocket because of defensive takes on construing such research in patent specifications during patent prosecutions, all in an effort to game the claim construction review by the courts. My way eliminates such wasteful litigation and R&D work and reduces the taxpayer burden by removing the issue from the tax-funded courts and out of the grasp of value-depleting attorneys.

My solution is not a suggestion to permit the government to steal property without warning, but changing the system of how patents work in the case of vaccines. There would be fair warning for the market to adapt to it. I would also note that you don't have an inalienable right to a patent; just read the Constitution!

Still W

One cent not "on cent".

N.E.Hatfield

W, On an equitable basis? How? When the worlds population is around six billion souls. By the time an epidemic is recognized it's already to late. You can't ramp up the production and distribution to cover them all. It becomes an exercise in "Life boat ethics" and the survival of the fittest.

David Welker

W,

I will respond to your comments, though I am uncertain they deserve response. You make the point that sometimes by responding to an argument, you give it an undue legitimacy. I disagree with that position. Merely responding to an argument does not change its legitimacy; however, even poor arguments that are at their core narrowly ideological can have negative consequences in the real world - thus the rationale for responding to them. Me responding to an argument may imply that I think it has merit; however it also may imply that I think it is sufficiently plausible to some (like yourself) while nonetheless being clearly wrong such that a response is useful. By responding, I am not in any way implying that your ideas should be taken seriously.

Now, to move to substance, which is more interesting. You wrote:

"I suspect the only justification you have is at root a utilitarian one. That is quite odd, given that this an economics blog. As Posner recently said, '[I]t is ... useful to distinguish between the utilitarian and economic perspectives. Economists generally measure the welfare effects of a new product by willingness to pay rather than by subjective satisfaction (pleasure, happiness, freedom from pain, etc.).' What is the economic justification for tweaking the market?"

First of all, economics alone is a justification for precisely nothing. There must be some sort of normative theory which justifies the results arrived at by market mechanisms under a given set of rules. It is not enough to say that a market, which only exists under certain frameworks provided by government in the first place, is itself inherently self-justifying. That is what you are blindly assuming away and which Posner does not.

Economic models are predictive tools. They are meant to be descriptive, not normative. They are tools used to predict outcomes; they employ questionable assumptions. But that is okay, as long as you know what those assumptions are and understand their significance to the outcomes predicted. The reason questionable assumptions are employed is entirely pragmatic. Economic models would be excessively unwieldy and would obscure more than they clarify without some simplifying assumptions. Economic models don't tell you what assumptions to use and which not to use. It is possible to have models with different assumptions. Models are just there as a tool, waiting for you to use them for your purposes. They don't provide answers to hard normative questions. Anyone who has a firm grasp on economics understands this; it is clear that you do not have a firm grasp on economics, since you clearly do not understand this. You think that the idea of "economic justification" is in any meaningful way sensible. It is not. Notice, that what Posner said is that it is useful to seperate economic perspectives from utilitarian perspectives. He did say it is useful to seperate economic justifications from utilitarian justifications. He knows that the ecnomic perspective is descriptive, not normative. That the use of economic models provides a perspective, not a justification.

I do not think that one can read much Posner and come to any other conclusion that that he has strong utilitarian tendencies and furthermore that he understand that underlying rules have big impacts on outcomes that result from market mechanisms under those rules and must be evaluated based on their normative attractiveness. Having a massive flu epidemic which kills millions of people is not normatively good, therefore, the free market mechanisms which lead to these results and come into play under the current rules should be replaced by free market mechanisms that lead to different results under different rules. At the end of the day, Posner is a pragmatist and is concerned primarily about results. He is not you, who seem more inclined to blind ideology that instinctively reaches for the same tired tool to respond to every single policy problem, regardless of the important differences presented by different problems.

I think that your initial comment was ideologically driven and reflective of ignorance about how markets work is best illustrated by what you say next: "What is the economic justification for tweaking the market?"

This is quite imprecise. Who said anything about "tweaking the market." What we are talking about tweaking are the rules which exist in the status quo. That may have an effect on the market, but you can't be opposed to changing the rules when they lead to better results. Any rule change will have SOME effect on the existing markets. That doesn't mean your "tweaking the market," does it?

If it does, then ironically, you have suggested doing the very same thing yourself in a later post: "It seems like an easy solution is for the government to offer a prize: 12 billion dollars, for example, to the first company to produce a vaccine for avian flu that meets the following criteria..."

What are you suggesting here is that the RULES be changed to reach better results. You are tweaking the rules and changing "free market" outcomes. Either your a hypocrite or you haven't fully considered your arguments. I think most likely, using the principle of charity in interpretation, that you have not fully considered your arguments. (By the way, I happen to think that the particular policy proposal here is a good one, with some modification it may lead to better results.)

So in conclusion, I think your an ideologue, but not a hopeless one. The reason I say your not hopeless is because you have suggested changing the rules to lead to better results. All things considered that is a good thing.

ben

W - why have you posted the same lengthy comment under both Becker's and Posner's posts?

W

Ben,
because Mike T did not criticize my post under both. The length of my reply is irrelevant, and the tone of your question incivil.

W

What are you suggesting here is that the RULES be changed to reach better results. You are tweaking the rules and changing "free market" outcomes. Either your a hypocrite or you haven't fully considered your arguments.

No. At one level I asked for a justification as to why we should "tweak the market" at all. "Tweak the market" was not my language; if it wasn't originally yours, well, it was somebody's on here who shared your view. You in particular tried to defend the economic perspective, but without fully justifying it. I probed that.

Without asserting that it is justified for the government to intervene in this situation (I obviously think it is notin this case), I offered a solution that would work. The two are not inconsistent.

Let's say a woman 5 feet away from us is choking. I do not think any of us have an obligation to save the woman from choking, but that doesn't mean I cannot demonstrate the proper way to administer the Heimlich manuever to an audience while she is choking 5 feet away. If you asked me why, if I can perform the manuever, did I not help the woman who was choking, I would say, "I didn't have an obligation to." Where is the inconsistency in that?

Instead of trying to find an inconsistency in my arguments that is non-existent, or attacking me personally as an ideologue because I think Thomas Sowell can make a valid argument, try justifying your position instead. Ah, but you do not justify your position, you all but concede that my criticism is absolutely correct:

First of all, economics alone is a justification for precisely nothing. There must be some sort of normative theory which justifies the results arrived at by market mechanisms under a given set of rules.

Having a massive flu epidemic which kills millions of people is not normatively good, therefore, the free market mechanisms which lead to these results and come into play under the current rules should be replaced by free market mechanisms that lead to different results under different rules.

Then you go on to "paraphrase" Posner:

He did say it is useful to seperate economic justifications from utilitarian justifications.

In fact, he does not say that. What he says is this: "[I]t is ... useful to distinguish between the utilitarian and economic perspectives." He could mean:
1. It is useful to distinguish between ... utiliarian [perspectives] and economic perspectives.
or;
2. It is useful to distinguish between the utilitarian and economic perspectives.

In the first interpretation it is more natural to take out the "the" for it to make sense, because Posner is comparing apples and apples, i.e., two kinds of theories. In the second interpretation, the "the" remains, but the meaning is different. Posner there would be comparing a utilitarian person with an economic perspective, i.e., he is comparing sense organs with a theory. One is independent of the mind, i.e., economics is objective, the other is subjective, i.e., rooted in the sense organs, or in a person.

If the second interpretation is right, Posner is sort of making your point, except it is untrue that "He did say it is useful to seperate economic justifications from utilitarian justifications." He in fact did not. He seems to be claiming that what justifies the consideration of economic questions is that they are objective or, as you put it, descriptive.

But that does not justify your argument, which is that we should be utilitarian in how we apply economic theory. That is the exact opposite of what Posner is saying; he is saying we should consider economic questions even if the consideration offends utiliarian norms.

On what basis do you justify the claim that "Having a massive flu epidemic which kills millions of people is not normatively good, therefore, the free market mechanisms which lead to these results and come into play under the current rules should be replaced by free market mechanisms that lead to different results under different rules." And where exactly does Posner in his post give support to such a claim? I am sure someone as well-versed in economic theory as you, Mr. Welker, could quite easily imagine many scenarios in which economic theory would demonstrate that the world would be better off if millions of people died from a pandemic.

W

It becomes an exercise in "Life boat ethics" and the survival of the fittest.

I know, N.E. Free market!

Dan C

>

Free markets are the best way to allocate scarce resources. Certainly you don't want a command economy allocating resources, or do you think we should all vote on every allocation issue?

When I talk about giving public money to research centers to do basic research it is with the full understanding that waste will occur. The same type of waste we see with defense spending. We spend, perhaps overspend, to assure a hard to define margin of safety. We buy very expensive insurance, with wasteful incentives built into the system - but if we don't spend enough, we risk disaster.

Vaccines against a pandemic flu that may occur every 30-50 years hardly creates an incentive for a private firm. The private sector will underinvest (in the view of risk averse people). The public sector will overspend (in the view of people with more risk tolerence.)

If the collective wisdom of the marketplace discounts the risk of a pandemic striking, we should not be surprised that private firms - who react to market incentives - react by limiting resources dedicated to vaccine research and production.

David Welker

W,

You did correctly catch a typo. I wrote, in the last post, "[h]e did say it is useful to seperate economic justifications from utilitarian justifications." I of course meant did NOT say it. I was of course contrasting perspectives with justifications; it wouldn't really make sense for me to contrast them and then write two sentences which imply they are exactly the same. Anyway, it seems you understood the point perfectly well despite my typo, which is nice.

It seems that you have caught on. You acknowledge that economic theory does not justify. Kind of. Except you say the following.

"I am sure someone as well-versed in economic theory as you, Mr. Welker, could quite easily imagine many scenarios in which economic theory would demonstrate that the world would be better off if millions of people died from a pandemic."

This is of course NOT something that economic theory would show. Economic theory might make more or less accurate predictions about something, but then it is up to you to evaluate the normative attractiveness of the results. I have explained this before, so I apologize for the redundancy. You seem like you get it, then you say something like above which makes me wonder. Frankly, no normative theory that I would subscribe to would accept the deaths of millions of people from flu epidemic as making the world better off. Economic theory just does not go there.

Still, I have to give you credit overall. You are definitely intellectually agile. Nonetheless, I do think I was perfectly justified in attacking you personally. Your first comment was reckless. I still think, all things considered, that you are probably an ideologue, but, I a may be wrong.

Finally, to respond to one last thing you write:

"But that does not justify your argument, which is that we should be utilitarian in how we apply economic theory. That is the exact opposite of what Posner is saying; he is saying we should consider economic questions even if the consideration offends utiliarian norms."

First, I am convinced based on reading way too much Posner, that he does have strong utilitarian tendencies. I am not saying that he is a pure utilitarian; you would have to ask him. Finally, whatever Posner's normative philosophy, I don't suppose it is particularly relevant in and itself. What is relevant is that you have and defend a normative philosophy and not suppose that economic theory is such a philosophy in and of itself.

Second, I don't think Posner is saying that we should consider economic theory even if it offends utilitarian norms. Why? Because if economic theory is descriptive, it will NEVER offend utilitarian norms or any other sorts of norms for that matter. Here is my economic theory, this is what it predicts. There is nothing to be offended by normatively by a prediction. All one would be concerned about is accuracy. One might and should normatively judge the predicted results, but not the model itself. Except in strange situations where the assumptions themselves are normatively offensive. This should not be the case except in very unusual circumstances. This is not really the case with standard economic theory; the assumptions themselves are not normatively offensive, at least not under what I would think are reasonable normative philosophies. The degree to which the assumptions underlying an economic model lack of accuracy undermines the predictions of the model is more of a technical than normative question. Thus, there really is no clash between descriptive and normative. (As a side note, I would not go so far as to say that economic theory is objective, at least in anything more than a loose sense. After all, economists have to choose assumptions and those sorts of choices are not exactly objective. That is why I would call economic theory descriptive but would avoid objective...)

Third, utilitarianism is the normative theory which best fits economic theory. Not that use of economic theory requires one to subscrive to utilitarianism. It just seems that the sort of information and predictions provided by economics are most relevant to utilitarianism and perhaps less relevant to other standard normative philosophies.

Fourth, so far, you have avoided articulating and defending your own normative theory. So, do you think the rules should not be changed even if doing so would save many lives? If not, why not?

Fifth, you wrote, "without asserting that it is justified for the government to intervene in this situation (I obviously think it is not in this case), I offered a solution that would work. The two are not inconsistent." Of course they are inconsistent! Your solution requires the government to change the rules and the results that would have occured under the old rules. That is called government intervention! Your solution is NOT consistent with the view that the government should not intervene. If that is your view, there is an inconsistency between your proposed solution and your view.

Ryan

In calculating lethality, bear in mind two things - first that an airborne disease transmitted from person to person will tend to decrease slightly in lethality as it spreads, since airborne diseases tend to evolved towards benign coexistance with their hosts. If you're so sick that you can't move, you can't spread an airborne disease. The exception is situations like WWI where people were packed into boxcars, in which case the disease would seek to 'use up' their host's resources as quickly as possible.

Second, lethality tends to be overestimated in cases like this since those people who die off are counted, but those people who get the disease and fight it off or only suffer minor symptoms may not be.

N.E.Hatfield

W, True "Free Markets" are only the pipedreams of anarchists. ;)

W

I meant figuratively by literally, by the way. Sorry!

David Welker

W,

First, you say that you did not catch a typo. Which implies that I am lying about what I meant to write. Fine. You can cling to this silly assertion, but I would note that it doesn't make sense to contrast descriptive with justification and then write two sentences which imply they are the same thing. Frankly, your willfully trying to exploit a typo in an un-editable comment into construing my meaning as being contradictory and implying that I really am either so simple-minded as two thoughtlessly switch between normative and descriptive.

Second, I can understand why you would seek to exploit this typo. Frankly, I think I have dispatched your "arguments" in a rather devastating manner. The evidence of this is your failure to respond to those arguments.

Third, once again, you demonstrate your incapicity to understand the difference between normative and descriptive: "If you simply change some of the numbers, what public policy outcome is optimal changes."

What is optimal, is based on what you are trying to maximize. What you are trying to maximize is based on what you think is best. What you think is best is based on your normative philosophy. It really is that simply, I don't understand why you don't get it. Economics does not say what is optimal by itself, it must be combined with a normative philosophy which allows one to evaluate the results predicted. Period.

Fourth, the last thing you say, not suprisingly, makes no sense. "You ... are the utilitarian. Economic perspectives are not you." You have earlier agreed that economic perspective are not normative. Thus, you must concede that economic perspective do not clash with utilitarianism or, for that matter, any other normative philosophy. However, by suggesting that economic perspective are not me, because I am supposedly a utilitarian, you suggest these things are somehow in conflict. Which shows that you still are fundamentally confused.

Fifth, I am not a pure utilitarian. You should avoid reckless inferences. But, overall, I am not suprised that you, once again, display recklessness. It is like earlier when you assserted that "Would also note that you don't have an inalienable right to a patent; just read the Constitution!" How much work would it have really been for you to have actually looked at the Constitution before saying something that is so clearly wrong?? Not much.

Sixth, while Posner does mention the "economic criterion of welfare," I don't interpret that to say that he thinks that economic models are normative rather than descriptive. What he means, of course, is that in economic models both producer and consumer surplus are created by employing market mechanisms. Surplus is the difference between either the price that a consumer or producer would accept, and the amount they actually pay. Posner's point is actually quite simple. Consumer surplus does not necessarily accurately capture utility, although for consumers with similar incomes, willingness to pay probably is a good approximation of utility in most situations. Thus, the information produced by economic models is imperfect from the perspective of utilitarianism. We don't really know if the resulting allocations really produce the greatest good for the greatest many. To that extent, what economists say is optimal in terms of maximizing welfare will vary from utilitarian social welfare to the extent that economic welfare fails to capture utility.

This does somehow transform economic theory into a normative theory. Only someone who did not really understand what they are doing would fail to realize that economic models fail to produce information relevant to many normatively significant consequences. It is quite clear that Posner is not someone who fails to appreciate this; otherwise, he would not have said "I am not suggesting that the economic criterion of welfare should be the only one employed by government." If Posner thought that economic models captured all normatively significant consequences, he would not think government should ever consider anything else.

I agree with Posner that the economic perspective is relevant. I also agree with him that there are limitations to that perspective in terms of capturing all normatively significant consequences.

I am not sure where you stand; so far, it doesn't seem like you even quite comprehend the difference between the economic perspective and normative justification. If you did, you would not suggest that there was any conflict between economic perspectives and utilitarianism when you write "You ... are the utilitarian. Economic perspectives are not you."

Dan C

Mr Walker.

I really don't understand your point 6. Consumer and producer surplus are most often a result of transaction costs. Wendy's sells hamburgers at a price with consumer surplus because the transaction costs needed to price discriminate are high. They will take steps to price discriminate by bundling items, senior discounts, special menus for the price sensitive, etc. Wendy's can not tell by looking at customers what they will pay, so they don't bother. I don't understand this lost utility as a market failure you see.

You also seem to ignore marginal analysis and how it helps allocate resources

I agree, to a degree, about normative values sometimes trumping economic models. For example, an economist can tell society how much it cost to run a drug war. And I can understand that society, or a majority, will still vote to continue the drug war because they can not morally accept the social consequences of legalization.

In the case before us, Judge Posner argues that society is discounting the risk of a pandemic. Next he argues that the economics of flu vaccines makes a rapid response to a quickly evolving pandemic almost impossible. The key to successfully fighting a pandemic is preperation before the pandamic occurs.

Judge Posner clearly has a differnt risk profile then a majority of society but that does not mean that he has different normative values. Judge Posner is not fighting to live while a majority of society is suicidal.

Judge Posner then argues that the economics of flu vaccines complicates his desire to fight a pandemic. Of course what he is really fighting is a society that does not share his alarm. He then offers ways that policy makers can tweak markets to get an outcome he desires. His preference is to seek market incentives (rather then just privatize the production of vaccines.)

The economic models just give the realitve costs of alternatives. The information that the economic models supply makes you an informed decision maker, it does not demand a course of action.

David Welker

Dan,

Great points. Like you say, economic models allow you to make more informed decisions, they do not tell you what normative values you should hold.

With respect to consumer and producer surplus, I think what you really meant to say, and this would be accurate, is that the inability to perfectly price discriminate due to (1) imperfect information and (2) lack of sufficient market power explain why consumer surplus exists. However, producer surplus would still exist even in a market with perfect price discrimination. Thus, it is not really correct to say that all surplus is the result of transaction costs.

I may not have addressed marginal analysis in this particular instance. You are quite correct to suggest that marginal analysis is often at the center of economic analysis, but what I was doing with the preceding posts was not economic analysis itself, but rather exploring the relation of economic models to normative theory.

Marginal analysis does, as you suggest, help predict how resources will be allocated. In particular, you can say that, for a given rational actor, they will continue doing an activity as long as the marginal benefit exceeds the marginal costs (where marginal costs include all costs, including marginal opportunity costs). That is all well and good and probably gives economic models a decent amount of predictive power.

Finally, normative analysis does not trump economic models. At least I don't think this makes sense. Normative analysis is about how things ought to be; economic models try to make predictions about what will result when market mechanisms are unleashed in a given environment under a given set of assumptions. In other words, economic models try to predict or describe. There is no trumping going on. The way you trump an economic model is not by making normative judgments, but by suggesting reasons why what it predicts may be innaccurate; for example, the model in question makes importantly unrealistic assumptions, is based on faulty data, or has logical flaws.

Normative judgments come AFTER you predict what will happen. If we do A, the economic model predicts that X will occur. If we do B, the economic model predicts that Y will occur. To attack an economic model, you would suggest that the model is innacurate: A will not lead to X or B will not lead to Y. To engage in normative analysis, you say whether you think X is better than Y or whether Y is better than X. So, as you can see, it is not really about normative judgments trumping economic models. Economic models don't claim to tell you whether X or Y is better (though sometimes economists WILL do exactly that -- but when they do, they aren't engaging in economic analysis), rather they claim to predict what will cause X or Y to come about. I don't think it makes sense to say normative values trump economic models when, properly understood, economic models do not involve normative judgments about outcomes.

I think the confusion here is understandable. Most economists have strong utilitarian tendencies and, often, they do not hesitate to tell you what they think is "best" immediately after going through some sort of economic analysis. Nonetheless, what is "best" is not really something that an economist is any more qualified to say than anyone else; their expertise lies in making models which hopefully make more or less accurate predictions or more or less accurately describe and explain reality.

Overall, Dan, I think your post is right on. As you say, "The information that the economic models supply makes you an informed decision maker, it does not demand a course of action."

David Welker

Typos! This is probably why I should comment from my own blog where I can make quick edits.

"This does somehow transform economic theory into a normative theory."

Should be:

"This does NOT somehow tranform economic theory into a normative theory."

David Welker

Not to mention spelling error! In the future, I am going to consider writing in a word process and then posting... Anyway, hopefully the mangled English does not detract from substance.

N.E.Hatfield

Josh, Is it too, to or two? I never can quite remember. It's like "Who's on first?" "No, Who's on second. What's on first." "NO, What's on third, Where's first?"

Dan C

For me, you could gather more information on any topic but the transactions costs are often greater then the benefit. The actual costs spent, plus the cost of the time lag etc. Next you could try to contract or even auction your goods or services. i.e. Wendy's could auction burgers outside a Burger King as a way to increase sales and profits but the gains would be minimal compared to the cost. In any case, I just lump these actions, ones I could take, but they aren't worth the effort, as transaction costs. I have better ways to allocate my resources with the full understanding that I may be leaving money on the table during the transaction. In competitive markets I may just ignore the whole issue of consumer surplus. I don't want to dance on a pin about this.

Normative analysis is about how you think things should be. Normative analysis often involves value judgements for example how to balance equity against economic efficiency. So when I say trump what I mean is that value judgements can lead us to sacrifice economic efficiency in pursuit of another societal or personal goal.

Economist also have the right to say that course x is better then course y. And different economist have different biases so their values will color their research. University of Chicago economist are doing wonderful objective analysis while Harvard economist (to the degree they are economist) are often hacks with a political agenda. My bias.

I think your seperation of normative Vs economic may be Ok for debates or teaching issues but it clouds the real world interaction of factors. Economist are not ignorant of normative issues when then study social issues. Policy makers are frequently ignorant of economics, but that does not mean that economic realities will not impact their choices.


Which leads to a related matter. As Justice Scalia would advise, depend less on expert witnesses and various social theories and look to the law when you decide legal issues.

N.E.Hatfield

Perhaps we all ought to take a look at the pending "Biodefense and Pandemic Vaccine and Drug Development Act of 2005" instead of trying to reinvent the economic wheel. Is BARDA (Biomedical Advanced Research and Development Agency)set to become the new Nasa? Also, it contains some interesting legislation on Tort reform.

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16 17 18 19 20 21 22
23 24 25 26 27 28 29
30 31