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Full Disclosure: For Me the Burden of Proof Is On Those Who Argue for Government Regulation

Posted By Don Boudreaux On November 27, 2013 @ 3:58 pm In Competition,Complexity & Emergence,Regulation,Risk and Safety | Comments Disabled

Commenting on this post [1], Rick Monihan sensibly asks:

If I am interested in buying GMO-free food (I’m not – I’ve eaten plenty but have friends who care deeply about it), shouldn’t there be a requirement telling people whether a food is or isn’t GMO-free?

No.  I believe that there is no justification for such a requirement.  An important reason why I oppose such a requirement is that there are no non-arbitrary criteria to guide even the best-intentioned government in determining which sorts of information-disclosure to mandate and which not to mandate.  The best practical rule is to allow competition among firms to determine which bits of information to disclose and how to disclose it.

Suppose (not unreasonably) that there are some consumers who would prefer not to buy foods harvested by ‘undocumented’ workers.  Should government then require suppliers of fruits and vegetables to disclose whether or not they take steps to ensure that all of their workers have official U.S. Government permission to work as farm laborers in America?  Suppose (not unreasonably) that some other consumers care about ‘gender equity’ in the workplace?  Should government then require that each supplier of fruits or vegetables disclose information about what proportion of its workforce is women?

Suppose (not unreasonably) that yet some other consumers care about ‘sexual-preference equity’ in the workplace?  Should government then require that each supplier of fruits or vegetables disclose information about what proportion of its workforce is gay, lesbian, bisexual, or transgendered?  Suppose (not unreasonably) that some consumers care about the employment prospects of U.S. military veterans.  Should government then require that each supplier of fruits or vegetables disclose information about what proportion of its workforce is made up of people who once served in the U.S. military?  Suppose (not unreasonably) that some other consumers care deeply about ‘made in America.’  Should government then require that each supplier of fruits or vegetables disclose information about what proportion of its inputs were bought from American, as opposed to non-American, suppliers?

Obviously, this list can be extended indefinitely.

Now a proponent of GMO labeling might respond by saying that most consumer concerns will be held by too small a number of consumers to justify wasting valuable label or advertising space on disclosing those consumers’ preferred bits of information.  This response would be valid.  It implies, though, that there are potentially some concerns that are held by sufficiently large numbers of consumers to justify the costs of disclosing the information that is relevant to these large numbers of consumers.  Only these kinds of information – the kinds that lots of consumers care about – should be mandated to be disclosed (says my hypothetical proponent of mandated information disclosure).  But if such a large demand for information disclosure exists, there’s every reason to believe that it will be supplied voluntarily on the market.  Its disclosure need not be mandated by government.

Botton line: if consumers in sufficient numbers want X-kind of information disclosed – that is, want it sufficiently to enable producers to cover their costs of disclosing it – the competitive market process will ensure such disclosure occurs.

This issue is an easy one.  Competition will drive firms to disclose information about matters that a large numbers of consumers know that they want to be informed about.

An early post here at the Cafe dealt with this issue [2].

The analysis is different for information about a product that a third party reasonably believes that consumers would want to know about if consumers, contrary to fact, already knew what the third-party knows about the product – think the higher risk of lung cancer, circa 1950, caused by smoking cigarettes.  Also, the question of truth in labeling and disclosure is a separate one.  The most straightforward forces of competition will drive firms to supply information about product-matters that consciously matter to lots of consumers.  In many cases, a more multi-dimensional and institutional rich process of competition is required to oblige firms to be truthful in their information disclosures.

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URLs in this post:

[1] this post: http://cafehayek.com/2013/11/a-note-on-information-asymmetry.html

[2] An early post here at the Cafe dealt with this issue: http://cafehayek.com/2005/04/what_can_be_wro.html


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