(Speaking for myself; the 10% estimate comes from work I did at GiveWell but others at Open Phil and GiveWell may disagree with me)
I agree we shouldnât dismiss consumer surplus entirely, and in retrospect would soften some of the wording in that doc â I think the irrationality point is important but not totalizing. The Nielsen idea is interesting and Iâd like to think about it more. I think internalities are less bimodally distributed between people than your model, which muddies the waters, but I wonder if an analysis like that could still be informative.
Fwiw the program we funded is primarily focused on taxation, which is a nice mechanism to balance a recognition of externalities /â internalities with a general prior towards personal choice. Iâd estimate higher than 10% if that wasnât the case. A focus on tax means the reduced consumption will be from the drinks for which people had the lowest willingness to pay, limiting lost consumer surplus.[1] It also results in increased tax revenue, so could be considered as trading off against alternative ways of raising tax revenue with their own deadweight loss in consumer surplus.
TBC, I recognize the inherent fragility /â subjectivity of the 10% estimate and I suspect different people would come to quite different conclusions about what input to use, so Iâd be excited to see more efforts to estimate this considering the broad sweep of evidence.
Of the two studies I could find on consumer surplus, the one which attempted to estimate consumer surplus from a marginal increase in price (rather than for typical consumption) estimates a loss of âŹ58 million in consumer surplus, compared to a âŹ700m improvement in âhealth, productivity, and non-financial welfare lossesâ (Anderson and Baumberg 2010, pg 34), implying an offsetting impact of ~8%. (Though I think there are a bunch of ways in which that study isnât analogous to the models we use, including a higher estimate of non-health impacts, so difficult to know what to make of it).
This also raises a separate worry about the extent to which taxation affects heavy drinkers, where the marginal harm is likely highest, which we tried to account for separately in the effect size estimate.
Fair points, I agree that taxation has a lower bar. The bimodal point was illustrative, you could take some other individual characteristics as proxies for the extent of internalities (e.g. education) and weight people by that when estimating.
Thanks for the thoughts Kartik!
(Speaking for myself; the 10% estimate comes from work I did at GiveWell but others at Open Phil and GiveWell may disagree with me)
I agree we shouldnât dismiss consumer surplus entirely, and in retrospect would soften some of the wording in that doc â I think the irrationality point is important but not totalizing. The Nielsen idea is interesting and Iâd like to think about it more. I think internalities are less bimodally distributed between people than your model, which muddies the waters, but I wonder if an analysis like that could still be informative.
Fwiw the program we funded is primarily focused on taxation, which is a nice mechanism to balance a recognition of externalities /â internalities with a general prior towards personal choice. Iâd estimate higher than 10% if that wasnât the case. A focus on tax means the reduced consumption will be from the drinks for which people had the lowest willingness to pay, limiting lost consumer surplus.[1] It also results in increased tax revenue, so could be considered as trading off against alternative ways of raising tax revenue with their own deadweight loss in consumer surplus.
TBC, I recognize the inherent fragility /â subjectivity of the 10% estimate and I suspect different people would come to quite different conclusions about what input to use, so Iâd be excited to see more efforts to estimate this considering the broad sweep of evidence.
Of the two studies I could find on consumer surplus, the one which attempted to estimate consumer surplus from a marginal increase in price (rather than for typical consumption) estimates a loss of âŹ58 million in consumer surplus, compared to a âŹ700m improvement in âhealth, productivity, and non-financial welfare lossesâ (Anderson and Baumberg 2010, pg 34), implying an offsetting impact of ~8%. (Though I think there are a bunch of ways in which that study isnât analogous to the models we use, including a higher estimate of non-health impacts, so difficult to know what to make of it).
This also raises a separate worry about the extent to which taxation affects heavy drinkers, where the marginal harm is likely highest, which we tried to account for separately in the effect size estimate.
Fair points, I agree that taxation has a lower bar. The bimodal point was illustrative, you could take some other individual characteristics as proxies for the extent of internalities (e.g. education) and weight people by that when estimating.