David R. Henderson  

"Rationally Inactive"

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In a problem set for an Energy Economics course I'm teaching this quarter, I asked the following question:

The U.S. government requires that a certain amount of ethanol be used in gasoline in the United States. There is fairly strong evidence that this does not do anything to delay global warming or to save energy on net. There is strong evidence this government-created demand for ethanol has substantially raised the price of corn.

Using the political incentives we discussed in class, explain why, despite the argments of many economists, this requirement has been politically difficult to repeal.


What I was looking for, as I'm sure many of readers of this blog already know, is a discussion of concentrated gainers from the ethanol requirement, especially producers of corn, and dispersed losers, especially buyers of corn. I wanted them to point out that these corn consumers are "rationally ignorant" (one of the best terms I think economists have ever come up with, second only to "deadweight loss") and therefore do not get involved in the debate or lobbying.

A student surprised me, though, with a further insight. He made all the points I wanted to see about concentrated/dispersed and then made the point about rational ignorance of consumers as follows:

Their knowledge is low, and the cost of becoming educated and exerting pressure is high. They are rationally ignorant (or, alternatively, rationally inactive.)

Nice.


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COMMENTS (11 to date)
MikeP writes:

Extroverts are rationally ignorant. Introverts are rationally inactive.

Troy Camplin writes:

That is an excellent observation and most definitely needs to be promoted further. Indeed, you not only have those who are rationally ignorant, but you have, among those who are not ignorant, those who are rationally inactive. "Why, if you know the truth, don't you do anything about it?" Well, it may not be worth my time to try, since the costs to do something are higher than the costs of what I'm trying to change. Thus, I'm rationally inactive on a great number of things I think ought to be changed.

David R. Henderson writes:

@Troy Camplin,
Exactly. That’s why I liked it. For over 30 years now, I have not been rationally ignorant about, say, the farm programs or sugar import quotas. I have even lobbied Congressmen on a few issues. But have I ever lobbied them, or even written a litter, on farm programs or sugar import quotas? No, I haven’t. I am rationally inactive.

Vivian Darkbloom writes:

If persons who have concluded that it is not worth their time and effort to become active participants in policy debates are "rationally inactive" does that imply that some, if not most of those who are active are "irrationally active" ? (the feeling I often have when I submit comments to blogs like this one). Should "irrationally active" be an economic bookend term for "rationally inactive"? In either direction, the categorization of "rational" seems to presume that those making these decisions are correctly assessing costs and potential benefits. Their subjective assessments may not always be correct. Does that make them always "rational" nonetheless?

Greg G writes:

I think most voters understand that ethanol subsidies are a bad idea. But they are not willing to make big financial contributions to key politicians in the same way that those who profit from ethanol subsidies are. And they do not decide which candidate to support on that issue alone.

And then there is the outsized influence of the Iowa in the presidential nominating process.

wd40 writes:

When it comes to ethanol subsidies, are the producers of corn syrup and/or the producers of products that use corn syrup dispersed losers? When it comes to ethanol subsidies, are the oil producers (substitutes for ethanol) dispersed losers? Is farming (of corn) a more concentrated industry than the demand side? Does Archer Daniels Midland not care how much it pays for corn? Before I gave the concentrated versus dispersed interest explanation, I would first want to know the answer to these questions.

wd40 writes:

An addendum to my previous comment: ADM produces both corn syrup and ethanol.

Daniel Fountain writes:

@Vivian

From an economic standpoint people engage in an activity because (given the alternatives and information at hand and their perceptions of them) they view it as utility maximizing to engage in that activity over the alternatives. What "rational" simply means is that they can rank all choices of action in a consistent manner, not that they have the correct information/perceptions. The definition you seem to be using is closer to "logical", i.e. given the information and options at hand their perception are accurate.

Jeff Cunningham writes:

With all due respect, I suggest you are all missing a key, simple point. People are not involved because they feel, as an individual, they have no power to achieve change.
Please go back and read these comments. They seem to be more to promote the writer's own perceived intellectual prowess than to make a valid point.

David R. Henderson writes:

@Jeff Cunningham,
People are not involved because they feel, as an individual, they have no power to achieve change.
Exactly.

AbsoluteZero writes:

David, I have a basic question.
Is rational inaction supposed to include those who do not act because they don't know, those who know but do not act, or both?

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