Friday, 29 July 2011

Consumer surplus of event 2

At Offsetting Behaviour Eric Crampton responds to my post on Consumer surplus of events by arguing that what I am missing is that there could be a market failure preventing the realisation of potential consumer surplus.

First I am yet to be convinced that there really are market failures of this type. There are many ways to get people to pay at least some of – enough of - their CS to have an event put on. Second its not clear to me that even if there is such a market failure the use of a government subsidy is the optimal policy response. Think of the argument for the use of tariffs to deal with problems of infant industries. Back in 1969 Richard Baldwin pointed out that even if some form of government action is need to protection infant industries tariffs were a bad way of providing such protection. He argues that what is needed to handle the problems of infant industries is a much more direct and selective policy measure than import duties. I wonder if a similar case cannot be made here. There has to be a better more direct, selective policy response to whatever market failure is occurring than the use of a subsidy. Is there really no way to address the market failure at its source rather than distort multiple markets via the use of subsidies and the taxes to fund them?

1 comment:

Eric Crampton said...

First off, I don't buy the warm glow argument. Just saying that it's not insane to build that kind of argument.

I suppose having the govt coordinate a Kickstarter project would be a more direct intervention.