David R. Henderson  

A Problem with Information Mandates

Krugman's Strange Conclusion... Coming soon. Another Greek ele...

Even many very pro-free-market economists, noting that there is imperfect information in the marketplace, advocate that government provide information or require private firms to provide information. Even they often tend to regard government as an entity that will somehow provide the right kind of information or mandate that firms provide the right kind of information.

In the real world, though, it is not that simple. Governments may provide irrelevant information or mandate irrelevant information. But it sometimes can be worse. Governments may provide or mandate "information" that is misleading. A recent case in point is a regulation by the Florida government's Department of Agriculture and Consumer Affairs. It claims that "skim milk isn't skim milk unless vitamins are added to it." So it insists that Ocheesee Creamery in the Florida Panhandle label its skim milk as imitation milk. Of course, it's not imitation. Rather, it's real skim milk that the government insists be labeled as imitation. And because Creamery owners Paul and Mary Lou Wesselhoeft want to sell their milk to willing customers who want skim milk, they worry that labeling it as imitation milk will cause people to think that it's--imitation.

So economists and others who glibly propose that government provide or mandate information should think more carefully about their proposals. Government may not do the information function very well either.

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COMMENTS (12 to date)
Daublin writes:

The "organic" label is another one that comes to mind.

What a shopper thinks it means is that no artificial products were used in the growth and processing of the given food.

What a shopper really ought to be aware of is if higher-standard, higher-costing methods and techniques were used in the growth and processing of the given food. Sometimes an artificial product amounts to scientific progress and really is better to use.

What the label really means is based on a complex political fight for every kind of product that it can apply to. I read a little about the label with regards to coffee, and it's just gross. One thing that's clear is that, as with any other regulatory system, large corporations have a huge advantage in the long term. A large corporation is a small economy of its own, and they can have specialized staff that deal with the regulations and learn to game them in various ways.

ThomasH writes:

I agree with the injunction, "think carefully." It would be interesting to have a post or an article on optimal information mandates. Certainly the big/business small business compliance costs is one dimension as is capture by specific firms or subsets of firms is another. Another is regulation protecting the boundary of other regulation (apparently the issue with the "artificial milk" rule cited.)

My way of thinking about this is cost-benefit. What benefits may flow to consumers from a regulation (that firms would not supply without the regulation, which would in turn have to derive from an analysis of the reasons for this failure) -- including the ways consumers might mis-use the information -- compared to the costs of compliance with the regulation, which include impeding innovation in the regulated product? And the methodology has to be sensitive to the actual facts of a case so that it yields results both favorable and unfavorable to the proposal.

Proposals for GMO labeling would be a good one to start with.

JK Brown writes:

The larger issue here seems to be the government wishing to hide its mandate on adding vitamins, which they wish to obscure behind the the words "skim milk" or is it just "milk"? Often with an ignored "Vitamin D added" on the label.

Would it be so terrible to label the plaintiff's milk as "skim milk" since it meets the official test of milk fat with an additional label of "No vitamins added"?

Of course the government doesn't want that out there as it might provoke the thought in consumers as to the "vitamin D added" label and whether it was a practice they wished to support. Just as they would oppose "Vitamin D added by government mandate" or Vitamin D added under threat of government violence". Both of which are true.

JK Brown writes:

Related to government mandated information, or disinformation.

Does anyone believe if a wedding cake baker never refused to bake a cake for anyone but posted the following they wouldn't be harassed by the government?

"Marriage is holy sacrament a man and a woman.

"Any cakes we supply to weddings that are not between a man and a woman are supplied due to threat of government violence and should not be construed as our support of such unions"

How long before the government mandates that the sign be removed, or changed, to eliminate the words "threat of government violence" which all government mandates come with.

Martin-2 writes:

I had a box of pushpins from California that displayed the message "Warning; this product contains chemicals known to the state of California to cause cancer". I don't even know where to start.

ThomasH writes:
How long before the government mandates that the sign be removed, or changed, to eliminate the words "threat of government violence"

Until Hell comes into thermal equilibrium with ice?

Seriously, I think this question reflects a misunderstanding of how we get sub-optimal regulation.

Levi Russell writes:

Reminds me of the ban on coloring margarine yellow back in the 1800s.


Hana writes:

As a consumer, and a mother, it feels like the labeling issue has become political and promotional, not factual. "Gluten Free" labeling on corn chips, meat and dairy products is obviously designed to appeal to consumers who have no concept what gluten is.

While labeling mandated by government on first reflection may appear to be a consumer good, the real condition seems to suggest that the labeling is captured by pro and anti groups with little regard to true consumer information. Government becomes the sanctioning body for fights that do nothing to improve consumer awareness.

ThomasH mentioned GMOs as a potential area for labeling. A recent article in Salon, "Are GMOs Safe", by William Saletan provides an interesting view on GMOs vs anti-GMOs. The article provides a nice perspective for considering how agendas may override real concern about public safety.

Hana writes:

whoops, it was Slate, not Salon.

ThomasH writes:


Just to be clear, I was not suggesting that GMO labeling was a good idea. I was not, although that is mainly "mood affiliation" based on the stupid-to-me sounding arguments in favor of it.

What I was suggesting was that the issue would be a useful one to test/demonstrate what a proper cost/benefit analysis of labeling would look like.

A PhD thesis for a GMU economics student?

BorrowedUsername writes:

So if we accept that sometimes government will suggest / vote on bad policies that we should have no policies at all?

I do think there's too much restriction on 3rd party research into products. If I figure out the exact ingredients in coca-cola and then put it on the internet as information I might face legal action. Then again, if I make it up and claim there's cyanide in coca-cola and cause a scare I might also face legal action. So the law both helps and hurts accurate information. It doesn't seem like there's a fully neutral point of view on this in a world where we accept liability for fraudulent claims.

AS writes:

This is because when people recommend policies, they implicitly assume the policy will be implemented exactly as they imagine according to their own model. In reality, what gets implemented is nothing what the economist originally intended or imagined. And we never learn, except those who study Public Choice.

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