Doing good makes you want to do more good

Can you learn to be kinder, more charitable and helpful? If so, then what can you do to increase such virtuous feelings and tendencies? A recent study published by economists (no kidding!) showed that there is a correlation between altruistic acts and increased preferences for doing altruistic acts. The study, “Altruistic Capital,” was published in the American Economic Review.

Most economists assume that preferences are fixed. That is, my preference for being kind or for wearing blue colored shirts or for eating chocolate will not change. In contrast, the authors assume that preferences for altruism can change. They liken altruism to a type of capital. Just as physical capital (machinery, buildings, etc) or human capital (learning, skills, etc) can be enhanced through investments in machinery or learning, altruistic capital can be enhanced through investments. What investments increase altruistic capital? Doing altruistic acts. In other words, doing good increases the desire for and perceived benefits from doing good.

The authors conducted a study of persons working in the banking industry and showed that “altruistic capital grows proportionally to the effort devoted to altruistic tasks,” consistent with Aristotle’s assertion that “virtue is an asset that grows through righteous acts” (quoting the authors). Specifically, the authors found that “employee’s perceived returns to altruistic acts … are [positively] associated with more prosocial behavior at work.” In other words, getting people to do good can create a “virtuous circle”, where doing good increases the perceived personal benefits of doing good, which in turn increases the desire for and tendency to engage in good acts, such as cooperation with others.

We need more good in the world. So do some good, and bring someone with you when you do.

Economic principles and healthcare reform

On Thursday, May 4, 2017, the US House of Representatives passed a bill repealing major aspects of President Obama’s healthcare law (Obamacare), as reported (here) in the Wall Street Journal and other news outlets. The bill goes to the Senate for a vote. The bill ends mandates for people to carry health insurance and for companies to offer specific types of health coverage, among other things. Another Wall Street Journal article (here) states that backers of the bill “are betting that these changes will engender competition, draw healthier people into the insurance pool and cut premium prices overall.” Interesting, this is the same justification that backers of Obamacare gave when it was passed in 2010.

I know a thing or two about economics. There is nothing in economic theory or experience to suggest that anything in the old or new laws will necessarily increase competition or lower costs. Competition exists when there are many buyers and sellers in the market, where it is relatively easy for buyers and sellers to enter or exit the market, and where “all” sellers sell products or services that are similar enough so that it is relatively easy for buyers to comparison-shop for the best product at the best price. In this system, sellers have incentives to lower costs and prices and to increase quality in order to attract customers to their products. Companies that do this well are rewarded with profits; companies that don’t do this well go bankrupt. The incentive to lower costs and prices and to increase quality diminishes when it is difficult for buyers to compare products and services — that is, when it is costly for consumers to shop around, and when companies know it is costly for consumers to shop around — and when it is difficult for potential sellers to enter markets — that is, when there are barriers to market entry. The health care system is rife with problems of comparison shopping and market barriers. That is, the health care system is not a great model of markets and competition, and it won’t be anytime soon.

The root cause of the problem with contemporary health care is the thing Americans like most about it. We pay a monthly fee for health insurance. Then when we get sick or need health care services, we might pay a nominal fee (e.g., $20) in return for health services, while most of the cost of care is paid by insurance companies whose revenue comes from the thousands of patrons paying the monthly fee. Once we have health insurance, we have no incentive to shop for the best healthcare product at the best price, but rather the best healthcare product at any price, because the primary cost of service is paid by the insurance company. The insurance company does not have a strong incentive to induce health care providers to lower costs because the company can pass costs on to patrons.

Even when individuals want to know the cost of a particular medical procedure or service, it is nearly impossible for them to get a straight answer. “How much will the physical therapy cost?” I once asked a clerk at the reception desk? “I don’t know. It depends on the contract your insurance company has with us,” was the reply. “What is your normal rate, and what discount does my insurance company offer on that rate?” I asked. “I don’t know what our main charge is. Your discount will depend on your co-pay and co-insurance.” The conversation never got any better. Only after I got the bill did I learn what the cost of the service was.

Transparency in pricing for medical care will help here. Giving individuals an incentive to price-comparison shop will help, too. Health savings accounts can do this. Recently I have been scrutinizing our health insurance bills because we have a health savings account. It’s time consuming because there are so many individual charges, most of which I do no understand. In one instance we received a bill for a doctor’s visit on a day we could prove no one in our family was at the clinic. If I was not paying out of a health savings account I would not have thought twice about questioning the bill. The insurance company would have paid it. But I did question the charge and was able to get it removed.

I understand the health care system is very complex. But economic principles are not.

Another issue of Agriculture and Human Values is ready

The latest issue of the academic journal I edit, volume 34, issue 2, of Agriculture and Human Values, has just been published online (here).

A brief summary of the articles in this issue is as follows: Sippel et al assess the nature and impact of the financialization of farmland in Australia. Hill and Raster evaluate the rights of the Ojibwe people in Minnesota to control access to and use of wild rice fields in the face of appropriation by university researchers and others seeking to develop hybrid and genetically modified rice varieties. Mills et al examine factors affecting the willingness and ability of farmers to adopt environmental management practices. Clark et al report on perspectives of cooperative extension educators about food system change. Lyon et al assess the impact on women of their increasing participation rates in fair-trade coffee production in Oaxaca, Mexico. Roesch-McNally et al report on a survey of Midwest US farmers to determine factors affecting their intention to adapt farming practices in response to climate variability. Sumner et al study gender differences in the practice of conservation agriculture of smallholder farmers in Cambodia. Liu et al assess the community-building aspect of community supported agriculture in China and the UK. Orozco-Ramírezab and Astier study socio-economic factors expected to affect the genetic erosion of local maize varieties in Mexico. Bergstra et al assess the attitudes of different stakeholder groups in the Netherlands toward specific pig husbandry practices. Mars and Schau examine the role of entrepreneurship in facilitating local food system initiatives. Mason et al use a gendered mobilities framework to understand better how the movement of men and women in rural Tanzania affect their level of food security. Galt et al report on a survey of members of a community supported agriculture project in California to assess how member income affects participation and other considerations. Adolwa et al study how agricultural innovations are disseminated in two farming regions of Kenya and Ghana. Helliwell and Tomei assess the environmental stewardship implications of EU goernance policies on the biofuel industries in the UK and Guatemala. Sarmiento reviews and describes different strands of literature on alternative food networks.

Paying more for airline passengers to give up seats

In a previous blog post about the mishandling by United Airlines of a passenger that had already boarded the plane, I suggested the following thought experiment: “Suppose United offered $10,000 to each person who gave up their seat. I suspect most passengers sitting on the plane would have volunteered.”

The next day, AP News reports that “Delta OKs offers of up to $9,950 to flyers who give up seats.”

This must be just a coincidence.

A United case for free markets and clearly defined rights

A lot has been written and said about United Airlines and their mishandling of a problem of overbooking. In case anyone missed the story, a United Airlines flight was overbooked. The airline also needed to fly crew members to the plane’s destination. The airline asked for volunteers to give up seats and even offered some money as an inducement, but that wasn’t enough. So the airline randomly selected passengers to remove involuntarily. Three agreed to leave the plane but one refused. The airline called airport police, who forcibly removed the passenger. Photos and videos of the passenger being dragged out of the plane caused worldwide criticism of the incident and airline. There are numerous memes floating on the internet now inspired by the event.

I am not going to criticize the airline or defend it. Others are doing that. However, I think the story provides an ideal case for illustrating two important economic principles: the superiority of free markets and the importance of clearly defined property rights.

First, economic systems determine how scarce resources are allocated. There are different ways of doing this. One involves free markets, where the exchange of money determines how resources are reallocated. Another involves various forms of command and control, where government or other entities dictate who does what and what goes where.

The airline had (some may say created) a problem of scarcity. There were more people who needed seats than there were seats available. A free market solution to the problem is simple: offer enough money to induce people to voluntarily give up their seat. Here is a thought experiment. Suppose United offered $10,000 to each person who gave up their seat. I suspect most passengers sitting on the plane would have volunteered. The airline said it offered compensation (the WSJ article linked above states that the airline offered up to $1,000). Clearly, the airline did not offer enough. In a free market environment, if the buyer values the resource more than the holder of the resource does, then an efficient exchange can occur if the buyer offers more than the seller’s value. If it was worth more than $1,000 a seat to United to get a crew member on the plane, then the airline should have offered more. If it was not worth more than $1,000, then the airline should not have pursued the matter further. That is the simplicity of the free market.

When there is command and control, such as when the government decides who flies and who doesn’t, then the government uses the power of the state to enforce its preferences, which we saw clearly here when the airline utilized police to drag an unwilling passenger off the plane. If the airline had utilized market principles, then there would have been no incident worth reporting. Stated differently, when markets function well (and when they are allowed to function well), then there is almost never a story to report. I find that interesting.

Second, when there is confusion about property rights, then there will be conflicts. People who buy plane tickets, either with a seat assignment or who are sitting in a seat, believe they have rights to the seat on the plane. In contrast, airlines not only can overbook but also can involuntarily deny boarding of passengers and even tell passengers they have to get off the plane, suggesting the airline believes it has rights to the seat on the plane. (Anyone interested can read United’s Contract of Carriage document here, especially rule 25, which describes what the airline’s obligations and rights are with respect to “denied boarding compensation”).

Regardless of whether passengers or airlines actually own rights, it is the beliefs they hold that matter most here. If passengers believe they have rights to the seat and if airlines believe they control those rights, then there will be a conflict when there is a problem of overbooking (that is, economic scarcity). Markets won’t work well here because there is no basis for determining who should pay and how much, since there is uncertainty about who initially owns the right to be transferred. If the airline believes it has the right, then it doesn’t need to offer any compensation. It can just drag unwilling passengers off the plane and place other passengers in the vacated seats.

The Nobel winning economist Ronald Coase described this problem and pointed to a solution: make clear who has rights to the seat. According to the Coase Theorem, bargaining is efficient when property rights are clearly defined and when bargaining is reasonably feasible. Airlines have demonstrated that bargaining for overbooked seats can work if they just offer enough compensation, suggesting they effectively acknowledge the beliefs of passengers that passengers hold rights to seats they have paid for, regardless of what their overbooking rules say.

The lesson here is therefore simple. If airlines are going to overbook their flights, then they should be prepared to pay passengers enough to induce volunteers to vacate their seats on the plane.

The connection between strong families and secure property rights

While doing background reading for a research project I am conducting, I came across a book by Bertrand Russell entitled Marriage and Morals, which he published in 1929. The purpose of the book is to advocate a new way of thinking about marriage and sexual morality.

Russell is a too liberal for my liking, and he doesn’t hold a high opinion of religion. For example, he gives two objectives for the book. The first is “to eliminate the elements of superstition” or religion in defining what sexual morality ought to be. The second is “to take account of those entirely new factors which make the wisdom of past ages the folly instead of the wisdom of the present.” Here he refers to things like contraception and other “modern discoveries” that supposedly enhance the sexual freedom of people by removing the worry of creating an unwanted child or experiencing other concerns. At one point in the book Russell laments that people still have “fears” that are “irrational,” because of the “failure of psychological adaptation” to the new morality he advocates.

While I disagree with the overall message of the book, Russell makes a rather interesting observation about the importance of the family and the connection between family and secure property rights. In the first chapter, Russell states that one of the most important reasons that people engage in economic activity is to provide food and other benefits not merely for themselves but “for the sake of the family”. He then says that “as the family system changes, economic motives also change.” For example, without a family there is little motive for an adult to purchase life insurance. Moreover, “most forms of private saving would nearly cease if children were taken away from their parents and brought up by the State as in Plato’s Republic; that is to say, if the State were to adopt the role of the father, the State would, ipso factor, become the sole capitalist.” He continues by saying “that if the State is to be the sole capitalist, the family, as we have known it, cannot survive … [for] it is impossible to deny an intimate connection between private property and the family, a connection which is reciprocal.”

In other words, we need private property for the good of the family, and we need family for the preservation of property rights. If property rights are weakened, then we weaken the family. If the family is weakened, then we lose the basis for protecting private property. One feeds the other. In the extreme, if family is incapable of properly rearing children–or if the government claims that the family cannot effectively raise children–so that the State must take over that responsibility, then the power of government to take and control property will be at its greatest. I should add that Russell was an admirer of the Soviet Union, although he never fully embraced communism.

I’ve never thought about the connection between family and property rights until now. I find the connection very interesting. Implications? Well, if you believe in the importance of family, then fight to preserve rights to property. And if you believe in the importance of protecting private property, then fight for strong families. We need both for a stable and healthy society.