Seamus opens his post by saying
The background for this was the session of the NZAE meetings last week when the BERL report on the costs of alcohol was presented. There we heard again the suggestion the question of whether the costs drinkers impose on themselves should be included as costs in a cost-benefit calculation is simply a matter of one’s “world view”. That is, the suggestion is that if you believe that consumers are the best judges of their own well-being then, by definition, any costs consumers impose on themselves are offset by equal or greater benefits and so can be excluded, but if you believe that some consumers make decisions that they will come to regret, these consumers incur non-offset costs that should be included.I am from the first school of thought, even if ex post it turns out we suffer costs, this doesn't mean ex ante we made a bad decision which the government should have corrected for us. If I kill myself playing rugby, does this mean I was stupid to play rugby and that we should ban it?
Now, my world view is for the most part closer to the first than the second, although I don’t hold dogmatically to this view. That is, I believe that although consumers can and do make mistakes, they mostly are better judges of their own well being than are government officials, or at least are entitled from a personal-liberty perspective to make their own mistakes. Call that “world view 1”. But for the purposes of discussion, let us assume “world view 2”, which is the empirical and ethical assumption that people can make mistakes that can and should be averted by government policy. The question I want to address is what is how, or indeed if, that world view can be incorporated into cost benefit analysis (or just cost analysis).Seamus goes on to argue that,
It would seem that to use dollar values to calculate the costs of alcohol that irrational drinkers impose on themselves, you can’t adopt world view 2Seamus concludes this discussion by saying,
In short, the point here is that one is free to take a world view that people are sometimes not fully rational or informed, and to devise paternalistic policies based on that world view. But don’t use a false precision of dollar values, or use the technical apparatus of a valuation technique that depends on an assumption of rationality for its internal consistency.