Thursday, February 18, 2010

Recommended Reading: Korobkin on "Libertarian Welfarism"

UCLA Law Professor Russell Korobkin has a very interesting new (and refreshingly brief) article in the California Law Review (Vol. 97, pp. 1651-1685, 2009) (available here), which presents a different normative grounding for government actions designed to overcome defects in individual decision making due to, for example, biases, costly information, and bounded rationality.

In recent years, legal scholars and economists, building on the research of cognitive psychologists such as Daniel Kahnemann and Amos Tversky, have advocated what Cass Sunstein and Richard Thaler refer to as "Libertarian Paternalism." Despite the oxymoronic title, the theory, as most thoughtfully presented in Sunstein and Thaler's book Nudge (Yale 2008) seems sound: government is capable of taking certain regulatory actions that can improve individual decision making and enhance individual well being without actually requiring or coercing individuals to make better decisions.

For example, by requiring food manufacturers to provide nutrition information in clearly-marked boxes, the government reduces the cost to consumers of discovering that information, and puts them in a position, without requiring them, to make better choices for themselves

In his new article, Russ Korobkin argues - convincingly in my estimation - that this kind of government action is better defined and supported under a different oxymoronic label: "libertarian welfarism." What distinguishes Korobkin's conception from the "libertarian paternalism" of Sunstein, Thaler and others, is that instead of focusing on getting people to make better decisions for their own welfare, the goal is to improve individual decision making for social welfare.

A simple example illustrates the superiority of Korobkin's informal model of "libertarian welfarism." The US suffers from a shortage of organ donations relative to the demand for donated organs. Some scholars have argued that the existing shortage could be significantly reduced by a change in default rules. The current default rule in the US is "opt-in," which means that to become a donor an individual must take an affirmative action, e.g., signing a donor card. In some European countries, similar "opt-in" rules have been replaced by "opt-out" rules, which creates a presumption that individuals intend to be organ donors, unless they affirmatively signify an intent not to donate. Consequently, those countries experienced a remarkable increase in organ donations.

Even though Thaler and Sunstein treat the case of default rules for organ donation as an example of "libertarian paternalism," Korobkin explains that it really is not because one cannot argue that the change in the default rule itself leads to behavior that enhances the subjective utility of organ donors. The organ donation example is really better explained under Korobkin's "libertarian welfarist" model, which focuses on the effects of individual decisions not just on that individual's subjective welfare but social welfare.

The article is worth reading in its entirety, as Korobkin discusses several other theoretical and practical advantages of his social welfarist approach to non-coercive government regulations designed to "nudge" individual decision makers.

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