Thanks Luke, this is a great post. It seems like it applies in a very broad range of cases—except the one I’m most interested in, unfortunately, which is judging how bad it is to violate someone’s rights. We regularly value a life in CBA calculations ( $1-10 million in the US), but how bad is it to be murdered, holding constant that you die?
This cost should be internalised by the murderer, but many people seem ignorant of the cost, leading to an over-supply of murder. It’d be good to know how big the market failure is (so we can judge various preventative policies).
Obviously the same question applies to theft, oath-breaking, and any other rights violations you might think of.
Applying the same question to theft produces the result that if I steal your car and I get more utility out of having your car than you lose by not having it + the utility that you lose from psychological harm due to theft, insurance premiums rising, etc., I can internalize the cost and still come out ahead, so this sort of theft is not in oversupply.
Of course, we normally don’t consider the fact that the criminal gains utility to be relevant. Saying that it’s not a market failure if the criminal is willing to internalize the cost implies that we consider the gain in the criminal’s utility to be relevant.
Thanks Luke, this is a great post. It seems like it applies in a very broad range of cases—except the one I’m most interested in, unfortunately, which is judging how bad it is to violate someone’s rights. We regularly value a life in CBA calculations ( $1-10 million in the US), but how bad is it to be murdered, holding constant that you die?
This cost should be internalised by the murderer, but many people seem ignorant of the cost, leading to an over-supply of murder. It’d be good to know how big the market failure is (so we can judge various preventative policies).
Obviously the same question applies to theft, oath-breaking, and any other rights violations you might think of.
Applying the same question to theft produces the result that if I steal your car and I get more utility out of having your car than you lose by not having it + the utility that you lose from psychological harm due to theft, insurance premiums rising, etc., I can internalize the cost and still come out ahead, so this sort of theft is not in oversupply.
Of course, we normally don’t consider the fact that the criminal gains utility to be relevant. Saying that it’s not a market failure if the criminal is willing to internalize the cost implies that we consider the gain in the criminal’s utility to be relevant.