Saturday, September 08, 2007

Economic Naturalism and Public Choice

I’m reading Robert Frank’s The Economic Naturalist. It’s entertaining and readable, and I’m seriously considering adopting Frank’s approach for my own microeconomics classes. That said, I have a quibble: Frank seems a bit too willing to assume the incentives of regulators and policymakers match up with those of consumers and firms.

For instance, one of Frank’s favorite examples is the question, “Why do the keypad buttons on drive-up cash machines have Braille dots?” The natural answer is that it’s less costly for the ATM producers to produce just once kind of button for both walk-up and drive-up ATMs, instead of two different kinds of button. But a reader of Frank’s introductory textbook, which included this example, wrote him an email objecting:
[T]he real reason for the dots is that the Americans with Disabilities Act requires them. He sent me a link to a webpage documenting his claim. Sure enough, there is a requirement that all ATM keypads have Braille dots, even at drive-up locations.
Frank then responds by saying:
I wrote back to my correspondent that I tell my students their answers don’t have to be correct. But I also urged him to think about the circumstances under which the regulation was adopted. If it had been significantly more costly to require Braille dots on the drive-up machines, would the rule have been adopted? Almost certainly not. And since the dots cause no harm and might occasionally be of use, regulators might well find it advantageous to require them, thereby enabling themselves to say, at year’s end, that they had done something useful.
The “almost certainly not” is the part that bothers me. In this case, the regulators required something inexpensive (indeed, cost-reducing) that ATM producers probably would done regardless. But even if the Braille mandate had been very expensive, the regulators might very well have created it anyway. The Americans with Disabilities Act is well known, even notorious, for requiring all kinds of accommodations even when they are highly expensive and of trifling benefit. And that’s because regulators face costs and benefits that differ from those of the rest of us. They get the benefits of seeming to have done something, while imposing most of the cost on private parties.

But I haven’t finished reading the book yet. Maybe later Frank addresses the incentives of politicians and bureaucrats more directly.


Vera Bass said...

I haven't read The Economic Naturalist, but would like to comment on some economic realities of physical disability costs from a personal perspective.

Having worked for many years in commercial real estate development, I know that most good developers give thought to delivering attractive amenities to their target market. The *only* developments targeted to people with physical disabilities are special purpose care facilities which represent some tiny fraction of 1% of all development (larger if you include retirement and senior facilities).

In large scale development, which means either size as in a 1mm square foot complex or quantity as in 100,000 atms, the cost impact of providing facilities such as ramps, toilet stalls, or braille buttons is quite minimal. Developers simply accept whatever the rules are and put their energy into those rules/factors which make the biggest difference in financial viability and profit, such as setbacks or coverage.

In addition to my development background, I have also lived with physical disability, and can tell you that these legislated accomodations do not fail on a big business level, but do fail miserably on a small business and personal/community level.

It is common for the smallest and most numerous businesses in big cities to not offer their customers rest rooms, let alone handicapped access. They usually couldn't afford it if they wanted to. It is also common for hospitals to offer very little handicapped accomodation at entry and public points (if you're coming into an outpatient intake area and are not 100% mobile then you'd better bring a helper just in case).

Municipal legislators don't and can't enforce disability accomodation compliance by little guys or even many typically cash-strapped and legacy burdened institutions.

The disabled population also appears far smaller than it is because if you are disabled you simply don't go out much in response to the natural barriers.

The barriers can only be removed by other people, by those people in society who take any responsibility for operating public places, and if it isn't legislated, with a real cost that can be buried in big dollar number, then it simply doesn't happen. Just about ever.

The economic cost of this to society hasn't, I don't believe, been specifically measured in the following terms. First the direct cost of providing community aid and support to people who are isolated by lack of access. Second the indirect cost of lost productivity and economic contribution from people with a physical handicap.

The behavioral science and personal productivity/cost aspects of this topic can be applied to the aging population bulge as well.

The problem that I have with viewing something like this from a microeconomic perspective is that the view is focused on macro players and forces with no participation, recognition, etc. of or from individual citizens and natural micro entities such as communities. Sure, this can be viewed as mostly a social and education issue, but it is also translates into very real economic consequences.

carrie said...

The idea that politicians and bureaucrats adjust policies based on monetary costs is almost certainly wrong. Their concern is not with money as a cost, but instead the effect that the implemented policy will have on the politician. If braille keys were expensive, it could be made up for by the support from interest groups and other constituents who support the expense, and will likely support with the politician. Politicians seem less concerned with helping the overall social welfare of our nation and more concerned with keeping that position to help, through reelection.

Policy makers have little incentive to create successful policies in bulk because once the policy is passed and in action, there will be another problem that needs fixing. It is the time from introducing a problem that needs fixing, to coming up with a policy to fix it, that the politician receives the most attention and scrutiny. If this process can be perceived as running smoothly and efficiently, that is how the politician will also be seen. The cost of the policy plays a little part in judging this, and it’s hard for anyone to put a maximum price on sensitive subjects, like the disabled.

A huge contribution to a politician’s unique self interest is that when your job is never ending it’s hard to know what progress is being made, what progress should be made, and what progress is being put off until a more opportune time, like reelection year. All we have is our frame of reference from previously elected officials and their progress who faced the same incentives as the rest of the political system.

Anonymous said...

Back when my father worked for the gov't he noticed something one day: the braille on all of the signs in his building was painted on. Not raised dots, painted dots completely unreadable by the blind.

He said the look on the administrators face was simply priceless.