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The Political Economy of Restriction of Choice S'. C. Littlechild J. Wis~eman November 1984 - I INTR'ODUCTIONi 1. There are many goods whose consumption has,, or is believed to have, adverse effects on the health of the consumer, and per'haps on the health of others. It is frequently asserted that government has a duty to i~mpose restrictions on the sale or consumption of thesie goodis. What do economists reared on the logic of choice have to say about restrictions on choice?' 2. Normative theories of market failure andisocial welfare study the efficiency of markets as vehicles of choice. But they presume the "validity" of individual preferences. They shed only limited light on situations where individual preferences may be deemed "innvalid". The logic of choice provides little guidance N where the problem is to design rules by which it is decided whether or not people should be allowed to exercise suchichoice. ~ CA . G~ *We should like to acknowledge helpful comments on an earlier draft by E. Marshall, W. S. Siebert, B. Simpson and G. Stud'dert- Kennedy.

2 3. We argue in this paper,that the problem has to be resolved by appeal to the insights of public choice.. Where opinions differ, there i~s no single framework of analysis within which an "optimal" policy can be derived. Rather, the task is to seek an acceptable compromise between conflicting views. An important contribution whichithe economist can make i9~to characterisee those principles of' public policy, and those processes of social decision-making, which the majority of people are ]likely to find' acceptable. This inevitably takes economists into the realms of public choice. 4. The arguments of the paper will oftenibe illustrated with reference to tobacco, which raises all the issues we wish to discuss, and'with which we are familiar from previous research. However, the goods we have inimind include alchohol, 'soft' drugs and! certain foodstuffs. Legislation concerning the use of seat belts in cars is also referred to. We exclude from consideratiion- add~iictivegoodis, which,raisiead'ditional and different problems spilling over into the area of policy towards mental illness. Of course, there are difficult borderline cases, which will need'to be taken into account in any practical situation. But they are not our concern here. Also, the problems and principles under discussion would seem to be relevant to a much:wider range of goods and activities where government intervention is often urged, such as education, medical care, pensions, housing, dangerous sports, hunting, discrimination and so on. But while we hope the broader relevance of our arg~ument will be recognised, these activities lie:outside our present concern.

II THIy' IaEEED FOR AN ALTERNATIVE APPROACH 5. Economists often implicitly assume a single unified framework within which availabie policy alternatives can be evaluated against a set of policy objectives. For example, a "social welfare function", embodyingi the policy objectives of society as a whole,, may be postulated. Various measures of government intervention ca then be evaluated in terms of this function, and' that policy chosen which will maximise social welfare. 6. The "orthodox" social welfare function was devised as a means of' broadening the scope of normative welfare economics to incorporate more sophisticated'.objectives than the achievement of "eguity"' (eff'ectively, an "ideal" distribution of' income) and Pareto-optimality. The concern of the analysis.is thus with achievement of the "optimum conditions of' choice". It is nott concerned with what "'should"' be chosen. sut in the present context public policy is concerned with the arguments for and against the inhibition of choice: should the desire of individuals to smoke, drink or take drugs be frustrated or controlled, and if so for what reasons and by what means? 7. There wou,ld'l be insuperable objectives to deriving an empirical social welfare function for application iniany particular case. In what meaningful sense can, "social objectives" exist, other than as the objectives of the individual members of' a society? Indivi~dUal objectives typically conflict, are constantly changing,, and are not comprehensively known to any

4 public policymaker. How are they to be ascertained!, aggregated and continually updated to form a usable social welfare function? 8. The concept of market failure (coupled nowadays with that of "government failure") provides an alternative framework for analysing efficiency of resource allocation. Once again,, however, it presumes the validity of' indi~vidbal preferences, and'consequently has little appeal to those for whom economic efficiency is not paramount. Concepts such as liberty,, paternalism:and "societal failure", which are undoubtedly important in the present context, find no expression within the market failure framework. 9. Inlorder to derive and give substance to conclusions about public policy, especially (but not only) in this class of problems which lie outside "tttainstream" economics, a more comprehensive theory of political economy seems called for, basedd on aniintegrated model of economic, social andipolitical behaviour. It seems clear that this must develop through a fusion of the evolving insights of public choice with the study of individualistic market behaviour that is the main thrust of' economics at present. A characteristic of this dieveloprnent must be a shift of interest from attempts to prescribe what public policy "should be", in any particular case, towards the examination of the institutional arrangements from which policy ultimately emerges. Emphasis will then be placed on the efficiency of'these institutional arrangements in reflecting the objectives or wishes of individual citizens. N ~ ~ W. N ~ N ca~ #4 4='

1&. In furtherance of this approach, we shall proceed by identifying several broad~purposes, or desidlerata, of public policy. These are considerations that citizens are presumed to want taken into account in deciding policy. Such desideratalcan be related to empirical evidence,, but do not depend wholly upon such evidence for their acceptability. They would'.perhaps be accepted in general principle by most citizens, but different citizens can anddioattachidifferentrelativeimportance ozweights to each desideratum. Successful public policy must therefore be based upon,compromise. By reducing the number of those in outright opposition to what i~s being done, compromise can,minimise the disaffection inevitably engendered by any policy of public intervention. It is therefore necessary to considerr what is meant by accep.tabie compromise,, both for an individual and at the level o.f society as a whole,, and to analyse the institutional arrangements most likely to d'iscover and achieve this.

6 III DESIDERATA OF PUBLIC POLICY 11. In any discussion of public policy, a fundamental desideratum is the preservation of individual liberty in a free society. Set against this are various desiderata which imply restr ictions on individlual liberty. IDn the present context of goods with possible adverse health effe¢ts the most relevant desiderata would seem to be the correction of market failure (in order to promote efficiency), the protection of those unable to act in their own interest (paternalism)~, and the corxection of "false values" in society as a whole. 12. In different policy contexts, other desiderata would~ be more relevant, such as the equalisation of opportunity or the redistribution of wealth. These latter criterialare excluded'. here merely for the sake of brevity. Measures adoptedifor efficiency or paternalistic reasons will certainly have implications for income distribution ('e.gitaxes on tobacco and alcohol may be regressive). Conversely, the extent of market failure and the perceived need for paternalismiare not independent of income distribution('e.g. the amount and qualii:y of informationiavailable or "purchased" will depend'on income).. Nonetheless, thie four d'esiderata chosen will suff ice to illustrate the analysis. It will be helpful bri~efly to elaborate on thern.

7 (l) The preservation of individual liberty in a free soc_ie_~y 13. Although~economists have made important contributions to the study of liberty and' constitutions (,e . g. Hayek 19i6'0, 19713, 1916), "mainstrealn" economics concerns itself with issues of liberty and individual rights only insofar as it postulates that individuals are "free to choose". The literature of public choice:takes a broader view. Buchanani('19'1'5), indeed, sees the Wicksellian formulati~on of the choice- problem as the only one that gives any kind of relevance to welfare economics. Conformity with a unanimity ru1e~- that no policy should be implemented from which any citizen withheld consent - limits government to those policies, and those institutional arrangements for the introduction of' policies, that all citizens will accept. 14. It does not followthat no policy ispossi~blethat ~ nycitizen considers to be against his direct or immediate interest. There is scope for compromise, with citizens willingly accepting constraints they do not like in return for reciprocal behaviour on the part of'others. But the rule clearly sets limits to the role of' government, as well as provides a principle by which to j,udge its institutional arrangements. There will usually be general agreement (with scope for disagreement about specifics) that the government shouldiproperly be involved in the provision of defence, law and order, andiperhaps certain public goods such as roads. But to the libertarian, a more active role than this is seen as a possible (though not a necessary) invasion on individual liberty.

8 The correction of market failure to promote eff ic_icncy 15. The "market failure" desideratum is based on the concept of rational choice as expressed:in properly-functioning markets. Government intervention is justif ied if, and only if, it can, improve the functioning of the market or more effectively substitute for it. The criterion for assessing the relative performance of government and the market is the efficiency withh which resources are allocated to meet consumer preferences. Individual liberty is not aivaluie per se, except insofar as it conduces to efficiency. Individual preferences and abilities are taken as given, along with initial endowments of resources. The notion that preferences (as opposed to information) might be mistaken or "wrong" is outside the market failure framework as normally conceived'.. (3) Paternalis2n 16. The paternalist d'esideratumipostulates that certain groups of citizens (notably the young, the senile and the mentally sub- normal - but also in some ci~rcumstances and!to some people, the less ediucated' or less aff'luent?')~ are insuf f ic ilently well-informed or competent to make adequate judgements about the consumption of certain goods or services. Where people are not in alposition to make decisions which will be in their own interest (properly understood), government has a duty to take these decisons out of their hands and!entrust the decisions to others held to be better

informed'!or more competent. The pater'nalist view'is sometiimes (but by no means always) associated with the view'that human life is priceless, and that individuals should not be forced' into the position of having to trade-off their health and safety against other material goods. 17. In economics!, the concept of paternalism manifests itself particularly in the specification of so-called "merit goods", where it has been used'to argue for the provision of moree education (or housing or health care) than some citizens would voluntarily pay for. By analogy, a class of "demerit goods" might be identified which would justify the restriction of access to such goods. For example, it might be decided to prohibit thee sale of certain products, to supply them only upon the recommendation of some authorisediperson ('e.g. a doctor), to limit production or hours of sale, to prohibit advertising,, to increase taxes on these goods, etc. 18. The argument from paternalism may be dlistinguished f'rom close ly relatedi arguments basedi on market failure. An externalities argument for encouraging education adid health care is that people suffer if their fellow-citizens are ill-ediucatedd or unhealthy. Or it may be argued that the market has failed to provide consumers with adequate information on which to base their decis.ions; as a result, some citizens may be, or are claimed by others to be, insufficiently well informed about the deleterious, consequences of particular forms of consumption, and therefore in need of protection:. in contrast, the paternalist

10, argument is that, even if' adequate information were available, some~consumers are unwilling'or unable to decide "correctly"'. By analogy with the term "market failure", we might say that the paternalist desideratum derives from the existence of "personal failure". 19. An argument of'special interest in the present context is: that an individual may wish to change his consumption habits, but does not do so, not because the habit is physically add'.ictive~, but because he lacks the will to "break the pattern". (Schelling 1978) Public policy designed to make the particular form of consumption more difficult.or impossible would thus help the individiual attain his own desired objectives which would otherwise be beyond his reach. 20. Insofar as all citizens were of this state of mind, and would voluntarily accept or even support policy restrictioiis orn: their freedom, this is not strictly a case of paternalism. But if'these conditions do not hold, so that some people are helping others to help themselves against the wishes of the latter, then the argument is indeedia special form of'paternalism. (4), The need to correct for "societal failure"'. 21. Even if the importance of individual liberty is fully recognised, it has to be acknowiedg~ed that individual behaviour, including consumption behaviour based on:personal tastes annd preferences, is conditioned by history as well as by experience. =-r:.. ..