Tuesday, April 21, 2009

Harming our young people

Say the state has a law making underage smoking illegal. This creates an "Existing legal duty" not to smoke. Such laws are often not enforced because it is costly for the state to enforce them. But a parent or relative might find it easier to detect whether their child is smoking. What effect does the existing legal duty have? Wikipedia explains:
The prime example of this sub-issue is where an uncle gives his 17 year old nephew (a citizen of the USA) the following offer: "if you do not smoke cigarettes or marijuana until your 18th birthday, then I will pay you $500" (it is a criminal offense in the US for people under the age of 18 to smoke). On the nephew's 18th birthday, he tells the uncle to pay up, and the uncle says no. In the subsequent lawsuit, the uncle will win, because the nephew, by US law, already had a duty to refrain from smoking cigarettes.
Now the economics: Knowing his uncle will renege, the 17 year old nephew will smoke -- even if he wanted to take contract. Taking this one step farther. Suppose the 17 year old wanted to create the will power not smoke and promised to pay $500 to his least favorite charity if he broke his promise. He can't do that either. The US government deprives him of the right that Obama's budget chief has:
Regardless of the data, psychology matters. Orszag has employed this knowledge while training for a marathon.

"If I didn't achieve what I wanted to, a very large contribution would automatically come out of my credit card and go to a charity that I very much didn't support," Orszag says of his training strategy. "So that was a very strong motivation, as I was running through mile 15 or 16 or whatever it was, to remind myself that I really didn't want to give the satisfaction to that charity for the contribution."

He declines to name the charity.
The link is to an NPR interview where the exchange interviewer Andrea Seabrook hears this and tries to get Orszag to reveal the charity rather amusing.

About the strategy of binding yourself Orszag says it's about using psychology rather than economics, and while that may be true it's an idea that comes up in economics -- Thomas Schelling's two selves being perhaps the best example. But don't forget the excellent R. H. Strotz, "Myopia and Inconsistency in Dynamic Utility Maximization," The Review of Economic Studies, Vol. 23, No. 3. (1955 - 1956), pp. 165-180 -- and the Odyssey.

4 Comments:

Anonymous Anonymous said...

The Wikipedia example is flawed. It is correct that the court would not have ruled in favor of the youth, but the reasoning is incorrect. Under US law, the phrase "juvenile delinquent" is oxymoronic. If one is a juvenile, one cannot be held responsible. If one is not responsible, one cannot be delinquent. Thus, one under the age of majority – a minor or juvenile – cannot enter into a contractual relationship. Without a contract, there cannot be a breach of contract. Ergo, there cannot be a lawsuit and the court cannot rule in favor of the youth. There is no "existing legal duty" in this case.

Q.E.D.

7:54 AM  
Blogger John B. Chilton said...

Thanks, anon. I wondered about that. As you say, the economic consequences still go through.

4:02 PM  
Anonymous Anonymous said...

(From the same Anon) Thank you for your reply. I will stay Anon for a bit -- my office does not like me to be too visible -- but I am one of the other Emirates' economists. As always, your analysis was spot on, I just felt a need to comment because the ability to legally enter contracts proved to be quite... distressing to many returning Viet Nam vets who found that their cars, businesses, etc. that they thought they had owned when they were 18 had been... aborbed by others. Legal age (and voting age) was 21 then. The unfairness of that, after a tour in 'Nam -- returning too young to drink, vote, or sign contracts - forced a national referendum that pushed the legal age down to 18, changing voting curves and, probably, the national polity. The thought stuck in my memory. Keep up the good work. -ss

9:00 PM  
Blogger DeanO said...

Article on the two selves was great, thanks for that link.

I believe that is one of the fundamental problems with some economic theories, that it is based on the idea that humans will make the best decision for themselves i.e. always put their best foot forward. Instead I have met a whole lot of people in my life that do not seem to have this ability. Just the very fact that some people need (for example) a motivational poster in order to make the best decision for themselves instead of automatically making that decision is a demonstration of this fact.

Maybe it boils down to what exactly is our purpose here on earth? Is it to maximize our survival? Or maybe indulge in everything that makes us immediately happy. Or some combo thereof?

I am not claiming that any of the above is fact, just sounding out my thoughts.

9:09 AM  

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