Markets and Consumer Activism

April 11, 2007 | 56 comments
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With fair regularity, one hears someone talking of efforts to buy less of some commercial product, either out of a desire for global conservation or because he doesn’t like how it is produced or whatever. Invariably, he comments that his own effect on the market is small, but he wishes to “send a message” or help along some broader movement. Within a plausible model of markets. there are easily understood conditions under which this small effect is actually zero, and remains zero even if he is joined by many like-minded individuals. At which point one wonders if the “message” being sent is “I don’t understand how markets work”.

If the market supply of the offending good is fixed, one’s reduction in demand drives down the market price until all of the good gets sold. Thus there is no reduction at all in the amount of the good consumed. On the other hand, if the supply is completely flexible, then one’s personal reduction exactly translates into reduction in use. In general, most markets fall between these extremes.

Here are three possible examples:

1. Suppose that you buy the “peak oil” argument that, although we have a fair bit of oil, we only can get so much out at a time. This is arguing, loosely, that in a given year, oil supply is fixed or close to it. In that case, personal efforts to conserve, like buying a more efficient house, will lower the price of energy for others, but won’t actually affect the amount of oil consumed globally. If the goal is to lower the price, then this is just fine. If one’s goal is to increase conservation, you’re out of luck.

2. Suppose you do not wish to buy certain stocks because you find the underlying business repulsive– Walmart, tobacco companies, or alcohol being three examples. In this case, even if 80-90% of people agreed with you and refused to buy these stocks, this could well have no effect on the stock price– because the remaining people who feel no such compulsions will bid the price back to the market value. As long as the marginal buyer and seller are not conscientious objectors, the stock price is likely to be completely unaffected. In this case, your decrease in demand is not at the equilibrium of supply and demand, rendering it irrelevant.

3. Suppose you refuse to go see a movie because it is full of smutty garbage. Theater seats and DVDs have extremely high supply responsiveness (there is always another seat and DVDs are dirt cheap to make). In which case, one’s avoidance exactly translates into a reduction in quantity sold and a reduction in profits. Your individual effect may be small, but it is not zero.

Of course, if social activism is not about making a difference, but rather about feeling good about oneself, perhaps none of this particularly matters. I’m focusing on how such desires get translated into market effects. I’m using a fairly standard neoclassical market to provide the predictions. If one thinks the market deviates from that in important ways, one could conceivably get different results.

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56 Responses to Markets and Consumer Activism

  1. Sam B on April 11, 2007 at 1:00 pm

    Frank,
    How about if the social activism is in a different direction: for example, say I avoid giant agribusiness and instead buy my food from small, local, organic farmers not because I want to bring down agribusiness, but because I want to make a viable market for the small farmer? In this case, the social activism isn’t based on the boycott of the massive producer, but on making other decision (in my example, being a small farmer) into a viable option.

  2. Sam B on April 11, 2007 at 1:10 pm

    (and potentially, the politics of the send-a-message wish, it seems to me, could sometimes trump the economic realities. But in the middle of my day, without having eaten lunch yet, I’m not up for thinking of an example. In your example 3, maybe if people refused to see the movie because it was full of smutty garbage AND said to the companies that would otherwise put product placements in the movie that they’d stop buying their products (whether or not it would make an economic difference), it seems like you could make a difference. Even if the economics are against you, if you cry loudly enough, you might change things)

  3. Frank McIntyre on April 11, 2007 at 1:32 pm

    Sam,

    Good thoughts. I actually almost put in an organic food example. It is similar to the movie example and does matter by increasing or decreasing demand. In fact, if the industry has high fixed costs (where you spend a lot to produce the first unit, and then can produce the rest very cheaply, movies would be one example), being an “early adopter” can help make the difference between _existence_ of a product and complete absence by pushing demand up enough to make the product viable.

    By the way, in my third example (the movie one), I was trying to show an instance where such tactics would work. The consumer _does_ make a difference. They reduce demand for the movie and so lower profits. This discourages the theater from making more of that sort of movie. Similarly, seeing G-rated films or films of great artistic value encourages their production. Markets work very effectively in that case to convey the message.

    “and potentially, the politics of the send-a-message wish, it seems to me, could sometimes trump the economic realities. But in the middle of my day, without having eaten lunch yet, I’m not up for thinking of an example.”

    Obviously this would be true if you regulate the industry. But in that case it seems to me that it is the legislating that is dong the work, not the boycott. Other than that I am not sure what you have in mind. Maybe I will after lunch…

  4. Sam B on April 11, 2007 at 1:49 pm

    Frank,
    Thanks for your response. It’s something I’ve been thinking about for a while.

    You’re right that regulation would trump economic realities. I’d think that, even without, enough negative publicity could do it, too. Like the fur protests in the 80s, shaming or scaring people into not wearing fur (I am, I realize, combining the economic effect of boycott with external pressures). Growing up in San Diego, I never saw anyone in fur, so I assumed it worked. After moving to NY and seeing fur-wearers, however, I’m not sure if it worked for a while and then stopped, it never worked, or it worked to the degree that, without the boycotts, more people would be wearing fur.

    But it doesn’t really matter; your principal point is interesting, as well as the idea that early adopters can make or break a new product.

  5. Kristine on April 11, 2007 at 1:52 pm

    Frank, when I choose not to buy a product or shop at a particular store whose labor practices I find abhorrent, I don’t actually care whether my “message” gets heard or not; I am making a private moral choice. It’s much the same as not shopping on Sunday–I have no illusion that my abstinence will have any effect at all on the local economy; the only message I’m concerned about is the one I got from God about keeping the Sabbath day holy. It seems to me that choosing NOT to participate in particularly ugly economies is likewise a choice with moral implications separate from market effects.

  6. Frank McIntyre on April 11, 2007 at 1:54 pm

    Sam,

    I think I see what you are saying– that one can make other people not want a product and so drive down demand for it through shame. Then the same rules apply as above.

    The reason why the fur boycotts may have worked (I sure don’t know if they did or not) is that supply is not fixed. Thus it falls in the intermediate range where boycotts decrease fur use, but usually by less than the activist hopes, because they are driving down the price of fur which stimulates other (less socially activist) users to buy some more fur.

  7. endlessnegotiation on April 11, 2007 at 1:59 pm

    Frank:

    I think #2 is problematic because stock prices are not driven by a utility curve the same way a consumable item is. In theory stock prices reflect the market’s best guess at the residual claims on future cash flows divided by the number of outstanding shares. Relative “demand” for a particular stock is tied to the discount function an individual ties to that particular stock– not the marginal utility to be afforded by the stock (or it’s claims). While I agree with your result I think it’s entirely unrelated to either #1 and #3. I think a better example would be a product with a very limited supply with a very large corresponding market (i.e. diamonds, or vacation homes). If I decide to buy a “conflict free” diamond versus the alternative my decision is likely to have little if any impact on the price or market for “conflict” diamonds because there exists a sufficiently large number of potential consumers who are either ignorant of the distiction or don’t care.

  8. Mark B. on April 11, 2007 at 2:08 pm

    It seems that Mosiah had it right in matters of economics as well as government:

    “[I]f the time comes that the voice of the people doth choose iniquity, then is the time that the judgments of God will come upon you; yea, then is the time he will visit you with great destruction even as he has hitherto visited this land.”

    Except that it doesn’t take a majority making economic choices to drive the market–suppose that 99% of consumers of petroleum products chose to reduce their use by half, but the other 1% (say, Al Gore and John Edwards) raised their consumption enough to clear the market, there would be no change in either the total amount consumed or in the price. Hallelujah!

    Which leaves us with Kristine’s point–we’re stuck with doing right (as God gives us to see the right) because it is right, not because we can change someone else (or the world) by doing right.

  9. Frank McIntyre on April 11, 2007 at 2:09 pm

    Kristine,

    I agree that there are perfectly good reasons to avoid products because we personally wish to or feel God wants us to. I’m more thinking of the activist boycotting wherein one is actually trying to change market outcomes. I admit, I find it surprising that, although you would not want to shop at a place with poor labor standards, you “don’t actually care” whether or not you can change the firms’ behavior to help laborers. I would think that would be a principal concern. Perhaps you mean you don’t think you will have an effect, and so in that sense you don’t care.

    And, by the way, not shopping at a store would probably be an example where one is making a small difference, because supply for retail is not fixed and so the boycott may reduce the amount sold at that firm– thus they would need fewer workers and so they’d lay some off. Thus fewer people are now employed at places with poor labor standards. Unfortunately you just helped dis-employ some of the laborers but that’s a topic for another day.

  10. Frank McIntyre on April 11, 2007 at 2:21 pm

    endless,

    You are right that #2 is different in that it is not just about supply decisions. But your conflict diamond analysis works perfectly well for vice stocks. For example, let me re-write your phrase about conflict diamonds with stocks and it is obviously true:

    “If I decide to buy an evil stock versus the alternative stock my decision is likely to have little if any impact on the price or market for evil stocks because there exists a sufficiently large number of potential consumers who are either ignorant of the distinction or don’t care.”

    The reasons stocks reflect discounted future value is exactly because there are enough people who only value that aspect of them. Basically, the demand curve for the stock is completely flat in the vicinity of the equilibrium. Those who dislike the stock are the far right of the demand curve, past where anybody cares. But I imagine you understand that.

    Mark B,

    “we’re stuck with doing right (as God gives us to see the right) because it is right, not because we can change someone else (or the world) by doing right”

    I think this is often the case.

  11. Rosalynde Welch on April 11, 2007 at 2:23 pm

    This conundrum has really got me stumped as far as carbon emissions go, as I’ve been trying to work out what my own personal response should be. As far as I can tell, by cutting demand for oil by driving less and turning off the AC/furnace and using CFLs, etc, all I’m doing is lowering the the price so that my neighbor can afford to gas up his SUV for another year. I don’t know whether my carbon footprint has moral implications, but I care very much about reducing total carbon emissions—so I’m not sure what I should do.

    But airline flights are a flexible market, right Frank? So that reducing demand for flights might actually result in fewer flights (thus fewer emissions)?

  12. Mark B. on April 11, 2007 at 2:42 pm

    Fly standby, Rosalynde. You’ll only fly if there’s an open seat, and the marginal increase in the gross weight of the aircraft will make an insignificant difference in fuel consumption and carbon emissions. The plane would have made the trip even if you had stayed at home.

    Of course, if you want to actually get somewhere by a certain time, you may find the damage to your gut (as you nervously watch the standby board hoping that a seat will become available) is not worth the savings in carbon emissions.

    One more note: the new Airbus A380, which can be configured to seat over 800 passengers, burns fuel when full (and, presumably, emits carbon dioxide) at a per person rate similar to an Austin Mini carrying two people. That’s a pretty efficient way to move people around.

  13. Karl D. on April 11, 2007 at 3:18 pm

    endless (7),

    Frank’s right that stock prices could be affected if enough people refused to by “sin” stocks. I certainly agree with both of you that it is unlikely to affect prices; although, Hong and Kacperczyk
    have recently argued that there is a discount (I’m not a big fan of this paper). Also, I worry a little about Frank’s discussion in 10 because it seems to imply that if this happened the price wouldn’t be equal to the present discounted value of expected future cash flows (I do agree it would imply a downward sloping demand curve, but I am a downward sloping demand curve for stocks kind of guy). It still would; Frank’s hypothesized mechanism would show up in the discount rate. For example, we should see a lower price if the people willing to buy “sin” stocks were small enough that they would be forced to bear what is really idiosyncratic risk. Thus, the discount rate would be higher and hence prices would be lower, but the price would still be the present value of the expected future cash flows.

  14. Frank McIntyre on April 11, 2007 at 3:19 pm

    RW: It is certainly a problem and it is not obvious how you can personally reduce global emissions. Not flying does reduce plane emissions, but the oil can then just be funneled into other markets, so I am not sure there is much difference there.

    And just to be contrarian, higher prices from excessive use may spur alternative energy producers who face high fixed costs of development– thus paving the way for green energy sources!

  15. Frank McIntyre on April 11, 2007 at 3:25 pm

    “Also, I worry a little about Frank’s discussion in 10 because it seems to imply that if this happened the price wouldn’t be equal to the present discounted value of expected future cash flows”

    I happily disavow any interpretation of my comments that suggests stocks will not price at their expected discounted value.

  16. Karl D. on April 11, 2007 at 3:34 pm

    “happily disavow any interpretation of my comments that suggests stocks will not price at their expected discounted value.”

    Your very gracious and have freed up my mind so that now I can go back to worrying about whether short-selling profitability is really confined to micro-cap stocks (ya, more downward sloping demand curves).

  17. endlessnegotiation on April 11, 2007 at 3:51 pm

    Frank:

    The real problem with #2 is that the exact opposite of the desired effect is just as likely to occur (meaning the price could go up). If all those who choose not to buy the sin stock all happen to be higher than average discounters then the share price will actually increase. That would not happen for a consumable like diamonds or real-estate.

  18. Russell Arben Fox on April 11, 2007 at 3:54 pm

    “If social activism is not about making a difference, but rather about feeling good about oneself, perhaps none of this particularly matters.”

    “Feeling good about oneself”? Either that statement is more than a little condescending (in the reductive sense of implying that the things a person avoids or the things they do because of what they believe to be moral principle or religious edict or whatever, really have nothing to do with their relationship to virtue or God or whatever, but rather pertain wholly to self-satisfaction), or it is rather banal (in the simplistic sense of acknowledging that, one some level, everyone feels good about doing what they think to be good). Which is it, or is there a third option?

    “I’m focusing on how such desires get translated into market effects. I’m using a fairly standard neoclassical market to provide the predictions. If one thinks the market deviates from that in important ways, one could conceivably get different results” (emphasis added).

    Oh I think it’s considerably more than just “conceivably.”

    Let’s say I decide to boycott Wal-Mart. My children observe this, ask me why. I explain to them my beliefs about the moral consequences of consumer-driven economies, the concentration of economic power, the globalization of trade, and becoming dependent upon cheap commodities. Most of this goes right through them, but they grow up with it, internalize it, connect it with their general opinion of me as a father, come to acknowledge it (or not) as an aesthetically/philosophically/spiritually legitimate approach to addressing the pros and cons of certain styles of consumption, and consequently either themselves live in accordance with it or at least do not disparage those who do. Through generational influence, the impact of my decision spreads through how different persons shop, how they asses the balance between the various goods and harms introduced by Wal-Mart, thereby potentially causing changes in the opinions of people (some of whom–who knows?–might be my children) who may be responsible for making decisions about zoning, or about the enforcement of immigration or trade or minimum wage laws, all of which perhaps leads to making the sort of arrangements which allow Wal-Mart to be successful less prevelant. Completely aside from the specific impact or lack thereof which my boycott has had upon the economics which makes Wal-Mart presently viable, I have contributed, through my children, to the creation of a culture in which Wal-Mart is less viable, or at least less able to exercise the enormous influence it presently over the needs and desires of shoppers and municipalities.

    Also, the exact same thing, only not through my children, but through my wife, friends, students, colleagues, ward members, relatives, readers of my blog, fellow voters, etc., etc.

    All of which is just a way of saying that while economists might rightly question whether consumer activists understand how markets work, consumer activists might also rightly question whether economists understand how little of our sociopolitical reality the market actually describes.

    (In the meantime, let’s all go read Benjamin Barber’s new book, Consumed: How Markets Corrupt Children, Infantilize Adults, and Swallow Citizens Whole. It looks totally awesome.)

  19. Karl D. on April 11, 2007 at 4:23 pm

    endless (17), that’s not a possible equilibrium. in your hypothesized setup the social conscience investors would never own the stock in the first place because by there exists a group of investors that would be willing to pay a higher price. No need for a “socially conscience” boycott because they would be boycotting already on the principle of “they don’t think the stock is worth that much.”

  20. Julie M. Smith on April 11, 2007 at 4:28 pm

    Never, ever suggest that a mother of three small children fly standby.

  21. Frank McIntyre on April 11, 2007 at 4:29 pm

    Russell,

    “or it is rather banal (in the simplistic sense of acknowledging that, one some level, everyone feels good about doing what they think to be good). Which is it, or is there a third option?”

    Mostly the banal one; I mean that you are doing it not because you wish to change the outcome, but rather because of some other utility you get from engaging in the action. Thus, for example, I may give money to a charity because I wish to help the poor or because I wish to feel good about the fact that I give money to help the poor, or I wish to impress other people with my giving or because I believe God wishes me to help the poor. Suppose the charity, unbeknownst to me or my friends, actually just threw the money away, and thus having no effect on the poor. My giving would still accomplish goals 2 or 3 and probably 4, but certainly not goal 1. Likewise, consumer activism may or may not be accomplishing its equivalent “goal 1″ depending on the features of the market.

    Your hypothetical seems to be saying that my actions might change the regulatory environment, or make other people hate Wal-mart and so shop there less. I completely agree that activism can change regulations and thus change market outcomes. For goodness sake, surely you don’t think I am arguing that markets are unaffected by regulations! And making other people engage in the same boycott is exactly the sort of thing I am dealing with– when will that actually have a market effect on the outcome?

    But, hopefully you see my point– whether or not your market actions (and those of your children etc.) have a _direct_ effect on market outcomes depends on the elasticity of the supply and on the behavior of other consumers in obvious ways that I laid out. In the peak oil example, one is undone by inelastic supply. In the stock example, one is undone by the presence of even a rather small minority of pure profit seekers. In the movie example, one’s actions matter directly.

    Also, In the case of Walmart, it does not have a fixed supply, and so by not shopping there you are decreasing the size of Walmart (which may well be the goal). You may actually manage to disemploy Walmart employees by reducing demand. If you think this translates into them entering a Zionistic worker’s cooperative off in Shangri-La, then I guess that can only be seen as a good. If you think otherwise, well it might be considered a bad.

    Or, if you garner enough support, you may get Walmart to raise their labor standards, which is most readily accomplished by either raising prices or hiring higher productivity workers (which may well not be the same workers they hired before). The possible negative or positive effects of that would make for an interesting post sometime.

    On the other hand, not buying their stock will have no effect whatsoever.

  22. Mark B. on April 11, 2007 at 4:40 pm

    I have been to WalMart 4 times. The 4th time was to return some stuff I had bought the 3rd time.

    I haven’t eaten at McDonalds for close to 20 years.

    I refuse to buy tomatoes that have the texture and flavor of tennis balls.

    None of my choices has made any apparent dent in the business of WalMart, McDonalds or tennis-ball tomato growers and sellers.

    Julie, just think how blissful your flight would be if you go alone and leave the three small children to wait with your husband for the next available flight!

  23. madera verde on April 11, 2007 at 4:41 pm

    How does this relate to buying things on the Sabbath?

  24. endlessnegotiation on April 11, 2007 at 5:26 pm

    Karl D:

    You assume persistent behavior (someone has never invested in sin stocks) while my hypothetical assumes a change in behavior (someone has invested in sin stocks in the past an now decides not to do so in the future). The problem with your assumption is that it requires a priori knowledge of what is or is not a “sin” stock by the investor and further assumes that company portfolios do not change. Neither of those are very stong assumptions.

  25. manaen on April 11, 2007 at 7:33 pm

    Re: If the market supply of the offending good is fixed, one’s reduction in demand drives down the market price until all of the good gets sold. Thus there is no reduction at all in the amount of the good consumed.

    But in my world, the market supply never is fixed — it’s dependent upon production and delivery in some form that has attendent fixed (e.g. plant, debt, insurance) and variable (e.g. material, labor) costs. Once the price goes down so much that current price times volume doesn’t cover at least variable costs in the short run and fixed and variable costs in the long run, the operators almost always abandon the enterprise and the amount of the good consumed is reduced to zero, for lack of continued availability.

    All that’s required to send a very clear message is to lessen demand to the point where market price falls below what will sustain the enterprise and you have eliminated all consumption of that good. And, each person who refrains from buying represents one more step in that direction.

  26. Karl D. on April 11, 2007 at 7:41 pm

    endless, I am pretty sure this proves one thing: I am not nearly as capable as Frank in terms of explaining the implications of economic equilibriums. That’s okay, I have long considered Frank a superior economist anyways. Still, it is a blow for it to be so public. I’m actually not assuming what you suggest. The following statement in your setup is problematic:

    If all those who choose not to buy the sin stock all happen to be higher than average discounters then the share price will actually increase.

    Let’s assume a time t, a group of people decides that walmart is sinful and is unwilling to hold walmart at any price. Before, that time they did not believe it is sinful. Also, suppose no other information gets revealed to the market accept for the sinful nature of walmart and that we know that everyone agrees on expected future cash flows (we want to keep this constant or prices could change but it would have nothing to do with the sinful identification of walmart). Suppose, a person sells the stock because they now believe it sinful to own it. What can we say about the valuation of the person who sells relative to the person that buys? The seller has a valuation that is equal to or greater than the buyer which also implies that they believe the discount rate is the same or less than what the buyer believes. Why? Because no information besides the sinful nature of walmart has been revealed. Thus if the seller’s valuation was lower (which implies a high discount rate), then the seller would have sold earlier before walmart’s sinful nature was revealed because they could sell previously for a price greater than their own valuation. Thus a sell by the now moral conscience investor, reveals information inconsistent with your setup.

    If this doesn’t help you, then I will bow out and hope that Frank can make up for my lack of explanatory prowess.

  27. manaen on April 11, 2007 at 8:06 pm

    24. To add a bit, enterprises faced with falling market prices cause by lessened demand usually take the interim step of reducing capacity, either in actuality or in modeling, to keep the business of supplying the good sustainable. I’ve been part of many real-world examples during my 20+ years in automotive and technology companies and 5+ years as a business consultant. This reduced capacity/availability also forces a reduction in consumption of the good.

    25. Re: Also, suppose no other information gets revealed to the market accept for the sinful nature of walmart and that we know that everyone agrees on expected future cash flows (we want to keep this constant or prices could change but it would have nothing to do with the sinful identification of walmart).

    Is this saying that the *cash flows* are constant or *that everyone agrees on cash flows* is constant? If the former, to the extent that the investors who now refrain from owning walmart’s stock also have been walmart’s shoppers, the cash flows not remain constant as people decide to quit investing.

  28. manaen on April 11, 2007 at 8:08 pm

    26. …because they also will quit shopping there.

  29. Geoff B on April 11, 2007 at 8:30 pm

    Frank M, there is considerable evidence, as I’m sure you know, that recent high oil prices are doing a lot of good in spurring new oil development in North America. Some small oil fields had been abandoned when oil was under $30 a barrel, but now they are being reopened. In addition, there are new shale oil fields in Utah, Wyoming and Colorado that are ready to produce a huge amount of oil.

    Read here for more: http://www.energybulletin.net/22587.html

    From a national security perspective, we want to spur North American sources of fuel because it decreases our reliance on the bad guys, or the potential bad guys (Iran, Saudi Arabia, Venezuela). If we believe that, based on history, the United States is the best at dealing with market realities, we should also believe that entrepreneurs in the United States will be the based at finding new energy sources (including so-called clean energy sources such as solar and wind).

    Bottom line: we should cheer when energy prices go up because they spur the development of new energy sources and help us, in the long run, decrease our dependence on foreign oil. This means the best thing we can do for national security is drive around in our SUVs a lot so that oil prices stay high, thus spurring the development of new energy sources.

    Isn’t economics fun!!!

  30. Frank McIntyre on April 11, 2007 at 8:38 pm

    thanks for the interesting comments. I don’t have time to think about it all right now.

    Let me just note 2 things:

    I use the “peak oil” example not so much because I find it compelling, but because it is the current poster-child for the Malthusians, and so perhaps relevant when one is talking to those who are worried about conservation.

    I completely agree that as supply becomes more elastic (less fixed) then one’s actions directly impact the quantity sold– like in the third example I gave, which is the polar opposite from the first. Thus, the relevant question is often to think about _how elastic_ supply is in order to know how useful such action might be. The less elastic (the more fixed), the less of a quantity response one gets.

  31. Julie M. Smith on April 11, 2007 at 8:48 pm

    So, Frank, in cases of non-elastic supply (or whatever the appropriate technical term would be), how would you recommend we go about seeking changed policies where we don’t agree with current practice?

  32. manaen on April 11, 2007 at 9:25 pm

    30. One approach is to focus on positive instead of negative effects: rather than how we diminish a disagreeable practice, spend on things that encourage economic growth — goods, jobs, research, advertising — in agreeable practices.

  33. Julie M. Smith on April 11, 2007 at 10:04 pm

    But manaen, wouldn’t that be just as ineffective as the opposite? (Or am I missing something?)

  34. greenfrog on April 12, 2007 at 1:38 am

    Thanks, Frank. Good thought experiment. (To personalize it for myself, I applied it to my decision to go vegetarian to avoid participating in the conduct associated with industrial livestock management. I think I got to the right answer — something akin to category 3, taking into account the relatively rapid turn over of inventory (beef steers slaughtered at approx. 1 year), and assuming a relatively elastic production capacity. Is there any way to go about verifying the assumption (i.e., that production capacity is elastic — that the variable costs of livestock production are a sufficiently high percentage of over all costs that reductions in sale price would reduce production measurably)?

  35. Mark D. on April 12, 2007 at 4:53 am

    Geoff B,

    No one would suggest burning dollar bills as a way to combat inflation. If reduced foreign oil dependency is worth paying for, it would be a lot more effective for the government to simply increase tariffs on foreign oil. Then we could actually spend the revenue on something moderately productive.

  36. Maren on April 12, 2007 at 10:34 am

    When I was younger, I became very emotionally involved and charged about not supporting sweatshops in third-world countries, etc, because of the horrible conditions I saw on a documentary. I would read labels, check companies histories, etc. Until I met someone in college, whose family had been affected by the closing of one such factory. I was so excited at first to hear that one had closed down. However, she then told me of how that put her father and mother out of work. Even though they were paid nothing, at least they got paid. The factory closed, and nothing was put in its place, and her family had no way to make money.
    Ever since then, I have been very conflicted as to how to best take a stand. It is hard when we think we are helping someone, and in turn we hurt them.

  37. Frank McIntyre on April 12, 2007 at 11:14 am

    Julie (30),

    No question this can be a tricky question, as half the things I think of end up having other problems once I’ve thought them through.

    Under the peak oil argument, one could buy rights to oil and then not use them. If the concern is pollution emissions, one can buy a permit for a ton of SO2 emissions on the sulfur dioxide emissions market and thus reduce emissions. If we had a similar market for CO2 emissions then one could do the same thing there, but as yet those markets don’t exist (although the EU is setting one up as we speak).

    Madera,

    If your goal is to reduce purchasing on the Sabbath, the only countervailing force is that other shoppers might shop more on the Sabbath because the stores are less crowded. This probably only matters in places where retail places are noticeably crowded on Saturday.

    If your goal is to get them to close on Sunday, then if you boycott them completely on all days, this gives them an incentive (because supply is probably fairly elastic), but you need to drive down business enough that it is not worth staying open at all on Sunday. As more businesses shut down on Sunday, the gains to staying open for the rest of them start to rise, so you eventually hit a point where even a relatively small number of Sabbath shoppers could keep open some, but not all, firms.

  38. Ugly Mahana on April 12, 2007 at 12:08 pm

    Maren. Wow. What a lesson against knee-jerk thinking. Thank you for sharing it with us.

  39. CS Eric on April 12, 2007 at 12:38 pm

    I have had a small experience in the general area discussed here, related more toward the organic farm example.

    Several years ago, we first moved to a relatively small town. Not really knowing anyone, we went to the few stores that carried items we needed as part of the normal live experience. For electronics, we tried the two outlets of a chain store, one in the mall, and one in the harder-to-get-to downtown that also had lousy parking and was open fewer hours, and so was much more inconvenient. The people at the store in the mall didn’t seem terribly interested in our becoming repeat customers, and didn’t treat us very well. In contrast, the people at the downtown store went out of their way to be helpful and gave answers to questions I didn’t even ask–mostly because I wasn’t smart enough to ask them.

    Within three years of our moving to town, the mall store closed, and the downtown store was still open and thriving when we moved eight years later. The chain probably would have closed one store anyway, but it was telling to me that the one that stayed open wasn’t the one that was convenient, and open every day until at least 9 o’clock, but the one that had next to no parking and closed every day by 6 pm, 5 pm on Saturdays.

    Was I part of that corporate decision? Maybe a little. While the mall store was open, I would go there and decide what items I wanted. Then I would wait until the other store was open again, and go buy the stuff there.

  40. Frank McIntyre on April 12, 2007 at 1:11 pm

    Let me second Mahana’s comment. Thanks Maren. It is always nice to have somebody who can provide real life examples of how markets can give our actions unintended consequences.

  41. John Williams on April 12, 2007 at 5:05 pm

    Is it okay for Mormons to buy juice, muffins, and hot chocolate at Starbucks? Or should Mormons boycott Starbucks since its flagship products are coffee-based?

  42. Stephen M (Ethesis) on April 13, 2007 at 7:08 am

    How about if the social activism is in a different direction: for example, say I avoid giant agribusiness and instead buy my food from small, local, organic farmers not because I want to bring down agribusiness, but because I want to make a viable market for the small farmer?

    We buy things in our neighborhood for just that reason.

    have been very conflicted as to how to best take a stand

    Given that the cost of labor is less than advertising for some shoes, one large company started insisting on paying workers more, getting ready to use that in their advertising, until they realized that the factory they had started with was staffed almost entirely by the people who had been teaching the local schools.

    They had some hard thinking to do and decided that there were trade-offs more important.

  43. Robert C. on April 13, 2007 at 4:43 pm

    So Frank, what’s your take on why people vote (analogous issue in my mind…)?

  44. Frank McIntyre on April 13, 2007 at 6:43 pm

    Either they feel a duty to vote,
    or they get some personal benefit out of it,
    or they think supermajority passage of something conveys additional information
    or they are unsure about the outcome
    or (linked to the second one) by voting they feel entitled to feel good about what something accomplishes
    or to grouse about its failures.

    Or something else…

    But hopefully they are not doing it under the delusion that they are likely to be affecting the up-down outcome of the vote itself.

  45. John Williams on April 13, 2007 at 8:08 pm

    Unless they live in Florida.

  46. Frank McIntyre on April 14, 2007 at 1:55 am

    Even then…

  47. timer on April 14, 2007 at 7:08 pm

    Hey Frank,

    Let’s say a lousy president does $10000 worth of harm per U.S. citizen. This is a conservative figure (no pun intended). Then getting the right person elected is worth $3 trillion.

    Let’s suppose it’s a close race in Florida and that the probability of your vote making a difference is 1 in 100000, and the probability of Florida being a swing state conditioned on this happening is 1 in 10. This not such an unreasonable estimate in a very close race, and it implies that the chance of your vote determining the outcome is one in a million.

    Then by voting for the right candidate, the expected amount of good you do is $3 million. This is more than many of us will earn during out entire lives.

    So this one vote may be more important — in terms of the expected good it will do — than your entire life’s career.

    Heaven forbid you should get it wrong….

  48. Frank McIntyre on April 15, 2007 at 1:09 am

    timer,

    Good question.

    You forgot to ascribe a probability to the one candidate doing more harm than the other one– rather you made it a point mass. Given that in a close race, half the people think one person is better than the other, it seems silly to start your model with the point mass that the wrong President does $10,000 of harm. A more reasonable expectation, given the split in the electorate, is that both candidates are equally likely to be good or bad. Care to re-run the numbers with that and see what you get?

    Also, is it reasonable that there is a 1/100000 chance that one’s Florida vote will swing the Florida election? Do you have a model in the back of your head that generates this kind of number? I haven’t really thought about it so if you do I’d be interested.

  49. Seth R. on April 15, 2007 at 6:15 am

    Frank,

    It seems to me that one of the flaws in our modern society is that people are increasingly isolating themselves from their immediate communities and fixating on a national community where their influence is attenuated at best, and completely counterintuitive at worst.

    For example, I can get all worked up about Wal Mart and sweatshops, or whatever. But my influence there may be negligible as you pointed out. But when my parents shop at the local neighborhood grocery store, owned by their bishop who lives down the street, it makes a big difference to him, his family, and the immediate neighborhood.

    Same with elections. My vote doesn’t do much to the presidential election. But my vote for county commissioner actually matters. Those elections can often be swung by less than a dozen votes.

    But our culture tends to fixate on the likes of Obama, Clinton, and Romney while ignoring local political figures (who, by the way have a much more immediate impact on each of us).

    Similarly, we often end up having closer relationships with TV sitcom characters than our next door neighbors.

  50. timer on April 15, 2007 at 8:38 am

    Frank,

    Well, obviously if you think there’s no difference between the candidates (or you can’t tell the difference) then it doesn’t matter whether you vote!

    Many of my liberal friends who would donate money to liberal causes — and feel passionately about these issues — seem to have no doubt in their minds that the amount of harm from another Bush would be at least $2500 per person per year. [Some conservatives seem to feel strongly the other direction, but this is a debate for another day.] But you don’t have to have point masses — if you assume the expected amount of good candidate A will do is $2500/per person/per year more than expected amount of good candidate B will do you get the same answer.

    But even if you decrease expected amount of good by a factor of ten, the expected impact of voting is still huge.

    Okay, let’s say a state like Florida has 6 million voters who vote for the two candidates. In a the most naive model, where everyone tosses a fair coin to decide how they vote, we would have a standard deviation Sqrt [6 million times .5 times .5], which is about 1225. The bell curve is e^{-x^2}/[Sqrt 2pi], right? So the probability of a tie in this case is about 1/[1225 * Sqrt 2pi ], that is about 1/3000. In this case, if you are the 6000001th voter to vote for one of the two candidates, you have a 1/3000 chance of breaking a tie. A tie could have gone either way in the Supreme Court, so there is maybe a 1/6000 chance of changing the outcome.

    Okay, that model is rather naive and it gave us an answer that was way to concentrated around 50-50.

    But what if we just say that we have a probability density where the chance of Candidate A getting between 49 and 51 percent of the votes cast by the two candidates is fairly high (say a one in 2 chance), and that given that it hits that interval it is roughly uniformly distributed between those two extremes. Then that would give you a chance of 1/240000 chance of making or breaking a tie. Maybe a 1/480000 chance of swinging the race.

    Okay, this is off from my original case by a factor of 5. But you can decrease both of my numbers by a factor of 10 and the effect is still huge.

  51. timer on April 15, 2007 at 4:16 pm

    I think I was a bit confused about parity in my last remark and divided by two when I shouldn’t have. Probability of one vote swinging the race is about 1/3000 in the first setting and 1/240000 in the second setting. Easiest thing to do is imagine that Supreme Court casts 1/2 a vote (and you just don’t know what it is).

    Alternatively, imagine that there is some random surplus number of votes that candidate A needs over candidate B in order to win (after all lawsuits, etc. taken into account), and this a random number that is approximately 1 (give or take a few hundred), and we need the probability that, without your vote, the surplus for candidate A is exactly one less than that number.

    Anyway, it’s wonderfully counterintuitive (and true) that when 6000000 people vote, each individual has a MUCH higher than a 1/6000000 chance of being a pivotal vote that determines the outcome.

  52. Frank McIntyre on April 16, 2007 at 11:23 am

    timer,

    I agree, the probability is certainly not 1/6M! Of course, whether the probability is more or less than that depends on how close the underlying vote probability is to one half. But I feel comfortable with my claim that, even if you live in Florida, if you think you are likely to affect the outcome, you are delusional.

    I am still uncomfortable with the $3 trillion benefit number, because I think it is missing a lot of important details, but I agree about the probability.

  53. timer on April 16, 2007 at 11:41 pm

    Well, “likely” is a relative term. If the payoff is really $3 trillion, then a 1/M chance of swinging the national outcome is “likely” enough to be extremely significant. If by “likely” you mean with probability greater than 1/2, well, you’ll have a tough time finding someone to argue the other side of that statement.

    I think my liberal friends would say the damage Bush has caused comes to about:

    Price of an unnecessary war: 1 trillion
    Tax breaks to people who didn’t need them: 1 trillion
    Ineffectual responses to everything from air pollution to Katrina: 1 trillion

    and that, when Gore and Bush were battling it out in Florida, they fully expected and understood that a figure of this magnitude (in expectation) was at stake.

    Of course, others felt just as strongly the other direction. There are others (like me) who at the time would have estimated the difference in expected good to be somewhat smaller (maybe 300 billion instead of 3 trillion).

    Even so, I think my point stands: if you are altruistic and care about the expected amount of good you do for humanity (and not just yourself), then voting for the better candidate in a close election is an _extremely_ efficient use of your time. Assuming you really do know which candidate is better, that is…. But I’m in academics. I rarely encounter anyone who has much doubt about which American political party is better. :)

  54. Frank McIntyre on April 18, 2007 at 1:47 am

    “Assuming you really do know which candidate is better, that is….”

    Right. That would be the first big problem. If I have a bunch of people with different beliefs about the outcome, then how do I know what the socially efficient outcome will be? I could average across them, and presumably in a close election (under reasonable assumptions) that average would end up being about 0. That’s my point. Now I understand that this is not how people behave, but if you wish to talk about social optima, that’s probably the most reasonable way to think about it.

    I should add that my comment to Robert was not about whether or not it is socially efficient (in the hypothetical you outline, clearly it is, although as I point out above I think that hypo never is going to happen) but rather why do people actually vote– because people do not, in general, show themselves to be quite that altruistic. Also, there are diminishing returns to think about (which seriously undercut low probability- high stakes outcomes).

  55. timer on April 18, 2007 at 8:26 pm

    A better way to think about it is that even very altruistic people have different global utility functions.

    An extreme case: suppose I am willing to give my life or do just about anything for the good of someone of my own race but I don’t care at all about other races. If all people of two different races all felt this way — and the vote was to determine which of two races would get all of the tax revenue from the country (the other race getting nothing), then you could, by voting, generate 3 million in expected income for people of your race.

    Okay, most of us (I hope) would not feel or behave this way. But it is certainly true that if I care most about the people and animals and causes that are better served by a democratic president, then I may do, in expectation, a great deal of good for those causes (admittedly at the expense of something somebody else cares about, but hey, that’s democracy).

  56. Ugly Mahana on April 19, 2007 at 11:25 am

    Of course, it is not clear that any one candidate actually is an unmitigated good, and that another is an unmitigated evil, or that one candidate could clearly avoid what was unforeseen prior to the inauguration, while another candidate could not. It seems to me that the hypothetical being discussed here requires an impossible amount of certainty. Of course, any one person may feel or believe one way quite strongly. He or she may even feel certain. This obviously influences the utility function of that person, but it does not shield him or her from the accusation of being delusional. (Of course, the person in question is free to argue that he or she is actually visionary. Curious.)