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Good News For Economists And Libertarians, Bad News For Mr. Ed…

December 1st, 2011 · 50 Comments
Markets · Policy

Q: What do selling kidneys, tossing dwarfs, and eating horses have in common?

A: I don’t know- let’s ask Professor Al Roth.

Unfair. Undignified. Inappropriate, unprofessional, distasteful—and most of all, repugnant.

To the wonder and surprise of Alvin E. Roth, a Harvard economist, these harsh words are often hoisted to describe an important task of his: designing and building new markets. As Roth writes in a new working paper, he and fellow economists have found themselves handicapped by a problem just as real as any technological barrier or requirement of incentives and efficiency: the downright distaste that some people feel for particular transactions.

For context, much of Professor Roth’s work is centered around markets for kidney exchange, but he shows that this notion of repugnant transactions inhibits the existence of markets for goods and services ranging from dwarf tossing to, you guessed it, horse meat. He is careful to point out that the notion of repugnance takes on somewhat of a paternalistic connotation in a lot of cases:

Repugnant is different from, say, disgusting. There are no laws against eating cockroaches in California, because nobody wants to eat cockroaches. The law of supply and demand takes care of that. But the reason there’s a law against eating horse meat in California is because some people would like to eat horse meat, and others think that they’re doing something repugnant.

You can see the full article and Q&A here, and you can read Professor Roth’s original paper on repugnant transactions as a constraint on markets here.

From an economic perspective, the suppression of repugnant transactions is most likely inefficient. The market for horse meat, for example, is most likely a well-functioning market in that many buyers and sellers could come together to voluntarily trade horse meat for money with little impact on outside parties. Well-functioning markets create positive value for society, and, conversely, outlawing such markets destroys value. That said, there are several common arguments that attempt to support the notion that the market for horse meat destroys rather than creates value:

  • Asymmetric information: Some people are concerned that, if horse meat is legal, then people are going to unknowingly be served horse meat. Last time I checked, fraud was still illegal, so I’m not convinced that this concern is justified.
  • Externalities: Some people argue that horse meat should be illegal because it imposes a psychological cost on the people who wouldn’t eat horses but have to think about other people doing so. However, in order for this psychological cost to justify outlawing a market entirely, one would have to believe that the psychological cost of eating horses is greater than the benefits derived from eating horses for the people who would choose to do so. (Horse meat, for the record, is pretty darn healthy.) I’m not even close to convinced that psychological costs stand any chance of winning this tradeoff, but I’m just waiting for people to use this sort of argument to oppose things like gay marriage and whatnot.

I suppose there’s a non-economic animal rights argument to be made in this case, but it’s unclear why horses should enjoy protections that cows, chickens, etc. do not. (Okay, fine, chickens are comparatively dumb creatures, but you get my point.) And yet, horse meat has been illegal in California since 1998, and a national ban on horse meat was passed in 2006. From Professor Roth’s paper:

Why can’t you eat horse or dog meat in a restaurant in California, a state with a population that hails from all over the world, including some places where such meals are appreciated? The answer is that many Californians not only don’t wish to eat horses or dogs themselves, but find it repugnant that anyone else should do so, and they enacted this repugnance into California law by referendum in 1998. Section 598 of the California Penal Code states in part: “[H]orsemeat may not be offered for sale for human consumption. No restaurant, cafe, or other public eating place may offer horsemeat for human consumption.” The measure passed by a margin of 60 to 40 percent with over 4.6 million people voting for it, almost the same majority as elected Gray Davis governor that year (see .

Notice that this law does not seek to protect the safety of consumers by governing the slaughter, sale, preparation and labeling of animals used for food. It is different from laws prohibiting the inhumane treatment of animals, like rules on how farm animals can be raised or slaughtered, or laws prohibiting cock fights, or the recently established (and still contested) ban on selling foie gras in Chicago restaurants (Ruethling, 2006). It is not illegal in California to kill horses; the California law only outlaws such killing “if that person knows or should have known that any part of that horse will be used for human consumption.” The prohibited use is “human consumption,” so it apparently remains legal in California to buy and sell pet food that contains horse meat (although the use of horse meat in pet food has declined in the face of the demand for U.S. horse meat in Europe, for human consumption.)

The repugnance of eating horses is not limited to California. On September 7, 2006, the U.S. House of Representatives passed, by a vote of 351 – 40, and sent to the Senate, H.R. 503: “To … prohibit the shipping, transporting, moving, delivering, receiving, possessing, purchasing, selling, or donation of horses and other equines to be slaughtered for human consumption.” (That bill seems unlikely to be passed into law, however.)

(By my count, there were at most 40 economically-minded people in the House of Representatives.) Technically, Professor Roth’s prediction was correct, but the sale of horse meat was effectively curtailed nonetheless by a measure that barred the USDA from spending funds to inspect horse meat. Before you get too excited about cost savings, however, consider for a second that less horse inspection means more inspection of other animals (since horse meat is a substitute for other meats), and no horse inspection means no exporting of horse meat to Europe and other places.

Therefore, I would consider it a big, perhaps inadvertent, win for economists that this spending ban was recently lifted. On the other hand, it doesn’t appear that the legal change is due to changing attitudes regarding repugnance:

“If plants open up in Oklahoma or Nebraska, you’ll see controversy, litigation, legislative action and basically a very inhospitable environment to operate,” predicted Wayne Pacelle, president and chief executive of The Humane Society of the United States. “Local opposition will emerge and you’ll have tremendous controversy over slaughtering Trigger and Mr. Ed.”

By that logic, doesn’t anyone care about the well-being of Elsie or Foghorn Leghorn? Just curious.

(Yes, I know it’s a donkey and not a horse, but I have to work with what I’ve got. Besides, it seems to be particularly appropriate, given the circumstances, that he appears to be turned off by economics.)

Tags: Markets · Policy

50 responses so far ↓

  • 1 Dan L // Dec 1, 2011 at 10:32 pm

    I think you’re brushing aside the asymmetric information concern a little too easily. Do you not remember the taco bell meat story? If taco bell wants to use horse meat, it wouldn’t be fraud as long as they never SAY that there’s no horse meat in it.

    Also, I think that the emphasis should be on DOG meat rather than horse meat, because the logic is exactly the same, but eating dogs is far more repugnant.

  • 2 econgirl // Dec 1, 2011 at 10:48 pm

    True- the dog situation reminds me that I’m probably a little weird. In general, I don’t have a particular problem with people eating dog, but I wouldn’t eat MY dog…and not just because he’s a chihuahua and would be totally gamey. :)

    Regarding your first point, I suppose there is a cost imposed by horse meat legalization in that people who don’t want to eat horse would have to ask before consuming an unidentified meat product. (It’s not that the information is unavailable, it’s just that it’s not necessarily costless to obtain.) Again, I can’t imagine that that tips the tradeoff scale, but I suppose it’s worth noting.

  • 3 David Welker // Dec 2, 2011 at 7:44 pm

    I disagree with your assertion that lifting bans on the consumption of dogs, horses, or trading in markets in human organs can in anyway be properly considered a “win for economists.”

    There is nothing in economics, properly considered, that requires one to take a particular position in favor of allowing all voluntary economic transactions among consenting adults.

    Economics as a field has nothing to say, one way or another, about whether repugnance is a valid reason to outlaw particular economic transactions.

    Let us consider the empathy that people feel towards “man’s best friend,” namely the dog. We consider dogs to be “property,” but unlike other property, we do not allow people to do anything they want to their dog (or other animals). For example, we do not allow dog owners to force their dogs to fight with each other while gambling on the winner occurs, even though this is a voluntary transaction amongst those involved.

    Do you, as an economist, support allowing gambling markets in dog fights? Do you believe that knowledge about economics compels a moral position in favor?

    I assume that, like most people, you would not allow dog fights. But note that dog fights are voluntary economic transactions among consenting adults.

    Surely a dog does not consent when it sold by one owner to another owner for the purposes of slaughter and as a food source. Does this matter? Economics does not have an answer. Nothing in economics says the interests of dogs should or should not be considered. Nothing in economics says how much one should weigh (or not weigh) the feelings of those opposed to slaughtering dogs for food. Nothing in economics says whether we should give dogs a privileged position above other animals (such as cows) or not.

    The idea that consenting adults should be able to do anything they want is a moral argument, not an economic one. One might use insights from economics to talk about this moral issue (just as one might use insights from medicine in talking about whether organ sales should be allowed), but economics cannot resolve ethical or moral disagreement.

  • 4 DB // Dec 2, 2011 at 8:51 pm

    David Welker, “[T]he whole of economics can be reduced to a single lesson, and that lesson can be reduced to a single sentence. The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.” — Henry Hazlitt, Economics in One Lesson

  • 5 Dave // Dec 7, 2011 at 2:28 pm

    Perhaps we should listen to the economists about what economics is, not David Welker. Free trade IS an economic argument, despite the fact that you think it’s a moral one.

  • 6 Michael Ryan // Dec 7, 2011 at 4:52 pm

    In Canada (specifically Quebec) horse meat is available and when I do barbecue hamburgers (not often) I usually choose horse-meat over beef because I am diabetic and my blood sugar goes a lot less wonky with horse-meat.

    (Ground pork and lamb and *gasp* veal is also an option over beef, but I like horse-meat the best as a beef hamburger substitute.)

    Horse-meat is not always available and not available in all stores at all times, but its availability does not seem to have caused horse lovers in Quebec some irrepairable harm.

    Mind you travelling to Montreal is like going to Europe without having to cross the Atlantic.

  • 7 David Welker // Dec 8, 2011 at 10:06 pm

    Free trade is not an economic argument. It is an economic phenomenon that sometimes exists and sometimes doesn’t.

    Talking about the consequences (tradeoffs) of free trade is a function of economics.

  • 8 Dave // Dec 9, 2011 at 12:39 pm

    Here’s an analogy for you, DW: Medicine is not a physician’s argument. It is just a thing that sometimes people get and sometimes they don’t. Physicians have no stake in advancing cures for the diseases they diagnose — they just talk about them. Talking about the consequences of medicine is a function of physicians.

  • 9 David Welker // Dec 10, 2011 at 7:07 pm

    Dave,

    And your point?

    I suspect you are trying to make one.

  • 10 Dave // Dec 12, 2011 at 10:04 am

    You are trying to argue that free markets are not a win for economists because they are agnostic on the issue — they don’t purport to believe they are good or bad, they just talk about them. I think you are wrong. That’s my point.

  • 11 David Welker // Dec 13, 2011 at 1:36 pm

    Dave,

    I see.

    Maybe most economists prefer “free” markets in most goods and services as an empirical matter. Just as most probably advocate for free trade as an empirical matter. (Although, we already are running into a very difficult definitional issue. Just what is a free market? If we regulate banking so that banks cannot become over-leveraged or too big to fail, do we still have a free market? If we regulate food production to avoid tainted food, do we still have a free market?)

    I would assume that most economists also are in favor of laws against murder as an empirical matter.

    Both judgments are normative. You should be careful to distinguish the more objective knowledge that economists actually contribute to society (i.e. a better understanding of tradeoffs) and their normative preferences (i.e. what policy choices we should make, given those tradeoffs).

  • 12 holmegm // Dec 13, 2011 at 2:24 pm

    Almost all laws are based on “repugnance”.

    It is repugnant to defraud someone, so we outlaw it. It’s not enough to say that “well, if *you* don’t want to defraud, then don’t.” We ban it for everybody.

    It’s repugnant to torture kittens to death. So we ban it. Not only do I not want to do it, I don’t want you to do it either. So I organize and we ban you from doing it. We don’t care that you and some others want to do it, that it might be a net boon for the economy somehow.

  • 13 Faza (TCM) // Dec 13, 2011 at 7:16 pm

    It’s interesting to see how some issues generate an emotional response to an attempt at rational evaluation.

    The horse meat issue is actually a good example, since the ban on trade in horse meat for human consumption is indefensible from a rational position. Given that there is no fundamental difference between the slaughter of horses for non-human consumption (pet food, say), nor is there a fundamental difference between eating a horse or a cow, the only reason to make trade in horse meat for human consumption illegal is that some people don’t like the idea.

    The economics of such intangibles as the feelings of those who believe humans shouldn’t eat horses or the satisfaction derived from eating horse meat are decidedly tricky, so they are probably best avoided. I put to you a different angle to consider: to what extent should somebody be able to restrict another’s freedom, in the absence of clearly identifiable social benefits?

    Most examples presented in the comments fail to address the issue, because they concern matters where other considerations are at stake (the closest fit would be laws against animal cruelty which – for the most part – is not a market issue; dog and cock fights are, to my best knowledge, illegal regardless of whether they are undertaken for profit or as a “hobby”). Such considerations do not apply in this case, since neither slaughter or eating of animals is in itself considered repugnant.

    We thus have a clearly lost benefit (the value derived from trade in horse meat for human consumption), no clearly identifiable gain (I doubt that most people give much thought to the eating of horses unless directly confronted with the issue) and no clearly identifiable social interest, other than a majority opinion. Of course, the problem with majority opinions is that the majority can oft times be in favour of some pretty nasty stuff, so that in itself cannot be considered unquestionably valuable.

    So, why?

  • 14 Faza (TCM) // Dec 13, 2011 at 7:19 pm

    Edit:
    Lost a “human” in the second paragraph, which should read:

    “there is no fundamental difference between the slaughter of horses for human and non-human consumption”

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    DB – Funny you should quote that sentence because Henry Hazlitt is one of the great masters of ignoring the longer-term consequences of market failures and consumer demand loss caused by free market activities.

    The 1946 book “Economics in one Lesson” could just as easily be titled, “Why the South Korea and Japanese experiments are doomed to fail.”

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