Tuesday, November 26, 2013

Subjectivity and Pollution: Boob Tube

Recall if you will one of the classic debates on public goods provision: Minasian vs. Samuelson on television signals (with commentary by James Buchanan)*. Samuelson's argument rested on the non-excludability criterion (remember, this was 1964): there's no way to block non-payers from intercepting a signal and enjoying the fruits of what the National Broadcasting Company had to offer. It's a classic free-rider problem, solved (according to Samuelson) by public provision. Of course, as Buchanan noted, it wasn't an issue of public good provision, it was an issue of organization, of institutional choice: third-party (advertiser) payments proved up to the task of solving the economic calculus.

One thing that sort of puzzles me about the transformation of entertainment services is the old economic maxim that there are no solutions, only tradeoffs. Should I pay $15 a month for the original programming on Netflix or should suffer the insipid advertising on Hulu? In the case of a paid subscription, I bear the opportunity cost in no uncertain terms: I give up fifteen bucks' worth of consumption so I can watch Orange Is the New Black. Sure, that sawbuck and a half is ultimately subjective, given my personal valuation of the things I want, but that distribution of wants exists in my noggin and my noggin alone. It's completely internalized; I am the domain. To watch The Misfits on Hulu, I have to slog through commercials for products I don't really want to buy. There, I'm an element of a larger domain: the entire viewing public. The point of targeted advertising is to help solve these sorts of matching problems, after all.

Here's the thing, advertisers are caught in a competitive dilemma. Attention is scarce, so they plumb a deep pouch of behavioral and psychological tricks to capture those sweet eyeball juices. Ew. Anyway, by the time you're an adult, you're pretty likely to be inured to most of these tricks (which contributes to the severity of the dilemma). But even with all the regulations imposed on advertisers, it's probably still fair to say that unwanted advertising engages the same sentiments that drive people to knock it off with all the littering already.

Okay so advertising in public spaces is one thing. There's a big domain there: everyone who goes outside. For some folks (see the link above), billboards are in the same ballpark as street harassment. Is television advertising the same type of beast? As a head of household, it's up to me (not really, that's actually Mrs. Wilson) to perform the cost-benefit analysis for my family and it's possible that I could be using bad heuristics to judge the effects of advertising on my daughter. Should I be putting more weight on adverse effects when I make the initial decision to invite broadcasters into my home?

It's possible that within the relevant domain, advertising imposes quasi-external costs. I think most people understand this, so they're prone to imposing regulations within that domain. Do your homework before you watch TV, Billy. But suppose that heads of households systematically misjudge these costs. If they overestimate them, then television is underprovided to kids. If these costs are underestimated, then kids are watching too much TV.

Do you see the empirical difficulty? It takes a double shot of systematic failure both within households and across households to justify intervention, and even then, you'd still need to model the highly idiosyncratic benefits of television programming. Once that task has been surmounted, the next analytical task is the most commonly overlooked across the board: dynamic comparative institutional analysis. Responsible policy analysis shows why the policy prescription is durably superior to the alternatives. Pause for a moment and consider how often you see thoughtful comparative institutional analysis.

Is broadcast television euvoluntary? Think very carefully about cognitive bias, regulatory domain, innovation, and measurement challenges before you consider what your answer implies. It's probably not as easy as saying "we [sic] need to regulate commercials... for the children."

*Buchanan (1967). "Public Goods in Theory and Practice: A Note on the Minasian-Samuelson Discussion." Journal of Law and Economics 10; 193-197

Minasian, (1964). "Television Pricing and the Theory of Public Goods." Journal of Law and Economics 7; 71

Samuelson, (1964). "Public Goods and Subscription TV: Correction of the Record." Journal of Law and Economics 7; 81

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Do you have suggestions on where we could find more examples of this phenomenon?