Consumer preferences, citizen preferences, and the provision of public goods.

• Author: Lewinsohn-Zamir, Daphna

1. INTRODUCTION

   A standard justification for state regulation and state provision of certain services is the market failure known as public goods. Public goods are characterized by two features: jointness of supply and nonexcludability. Jointness of supply concerns the cost function of the good and the degree to which its consumption is nonrivalrous. The marginal production costs of public goods are very low or even zero; adding more users would not detract from the benefits enjoyed by others. Nonexcludability means that it is impossible or impractical to prevent those who do not pay for the good from enjoying its benefits. These features make the supply of public goods through the market mechanism infeasible or suboptimal, thus calling for state intervention. Consequently, the government plays a major role in providing public goods such as national defense, roads, national parks, health and education systems and in guarding against air pollution, extinction of endangered species, and the demolition of historic buildings.

   Assuming the private market cannot react appropriately to the true demand for public goods,(1) the regulator must decide which public goods to supply and in what quantities. A policymaker wishing to base these decisions on people's preferences faces not only the problem of conflicts among the preferences of different people but arguably also the difficulty of conflicts between the revealed preferences of the same persons. As against the model of human beings who are rational actors, having a single, complete and transitive set of preferences, it has been claimed that in fact people have dual or even multiple preference orderings, reflecting the different roles they play in different situations.(2) In particular, some scholars argue that people hold and express different preferences in their "consumer" role and in their "citizen" role.(3) While the former role, evoked in market settings, reflects people's self-regarding wants and interests, the latter, aroused in political settings, reflects their opinions, values, and beliefs regarding the good of society as a whole. In its most extreme manifestation, the consumer/citizen distinction brings to mind the famous story of Dr. Jekyll and Mr. Hyde. Citizen Jekyll is a relatively altruistic person who attributes great value to--and is willing to make sacrifices for--the common good, whereas Consumer Hyde is an egoistic maximizer of personal wants and desires.

   This dismal description of daily life has drawn criticism, and alternative explanations have been suggested for the apparent inconsistency in people's behavior. These explanations attempt to vindicate consumer behavior and often portray citizen preferences as misinformed, capricious, or insincere.(4)

   The conceivable conflict between consumer and citizen preferences requires a crucial decision from policymakers: Should regulators base their decisions on preferences that reflect consumer wants, citizen opinions, or some compromise between the two? The possible divergence between consumer and citizen preferences demands a preliminary resolution with respect to not only the type of "informational input" that should be used by the regulator but also the type of process by which this information should be gathered and handled. A consumer approach will use market techniques, such as cost-benefit analysis and questionnaires concerning individuals' willingness to pay for public goods (e.g., contingent valuation studies). The regulator will attempt to identify actual preferences, aggregate them, and maximize their satisfaction. In contrast, a citizen approach will focus on preferences that are revealed in nonmarket contexts, such as votes in elections, political debates, and public opinion surveys. Decisions regarding the appropriate quantity of public goods will not be based on an aggregation of identified citizen preferences but rather on a more flexible process of deliberation and reasoning.(5)

   This Essay critically analyzes various explanations for the discrepancy between consumer and citizen revealed preferences, as well as their normative implications. It claims that neither the explanations based on the supremacy of citizen preferences and political processes nor those resting on the authenticity and realism of consumer preferences can persuasively and exclusively account for the discrepancy. Rejecting the contention that consumers and citizens hold radically distinct preference orderings, the Essay offers a different explanation for the greater manifestation of other-regarding views in the public arena. The suggested explanation is twofold. First, drawing on insights from game theory, I argue that differences in behavior can be understood within the framework of an Assurance Game. The game-theoretic examination explains why in market settings people may fail to achieve their most favored collective goals, even if their preferences are markedly other-regarding rather than egoistic. In particular, the perceived sense of "hopelessness" may play a crucial role in the behavior of consumers. This "hopelessness" is absent in political settings, which therefore may authentically reflect the other-regarding preferences that exist--but are not expressed--in the private arena as well. The second part of the explanation focuses on why preferences concerning public goods tend to be other-regarding. I argue that the nature of the good, rather than the nature of the process by which it is produced, determines the preference orderings and, in particular, the tendency for socially-oriented orderings. People's preferences for public goods are more other-regarding than their preferences for private goods.

   This argument has important normative implications. It supports the claim that citizen preferences should be given substantial weight in the formulation of public policy, particularly with respect to public goods. Moreover, the proposed explanation offers the soundest, least controversial grounds for interventionist regulation, more so than any other explanation for the differences between consumer and citizen behavior. Government intervention assists individuals in realizing their highest-ranking preferences, those they hold but cannot effectuate in the marketplace. At the same time, because the espoused reliance on citizen preferences rests on neither the inferiority of consumer preferences nor their characterization as self-centered, a sweeping rejection of economic tools, such as cost-benefit analysis, is unwarranted.

   The Essay opens in Section II.A with an account of the consumer/citizen distinction and the explanation for it suggested by its proponents. Section II.B then argues that the common replies to this explanation do not dispense with the issues raised by the consumer/citizen distinction. Section II.C critically examines additional explanations offered for the differences between consumer and citizen behavior. The first explanation focuses on the Prisoner's Dilemma. Other explanations emphasize various derogatory aspects of citizen behavior, highlighting such factors as misconception, insincerity, and caprice. The main Part of the Essay proposes an alternative explanation. First, Section III.A introduces the motivation of "hopelessness" and applies the Assurance Game model to the market and political arenas. Section III.B then examines how the nature of the good determines the type of preferences that people hold. Part IV then presents several normative implications of this favored explanation, and Part V briefly summarizes my conclusions.

2. THE CONSUMER/CITIZEN DISTINCTION AND ITS CRITIQUE

   1. The Basic Argument

      A widely accepted model of the economically rational actor assumes, among other things, that the preferences of an individual can be compared and ranked so as to constitute a complete and transitive hierarchy.(6) The model posits the existence of a single preference ordering, capable of representing every interest and value. This ordering determines the actor's choices among all possible alternatives and explains her behavior in each and every case.

      The single-ordering assumption has come under severe attack over the years. One powerful critique claims that people have dual or even multiple preference orderings, reflecting the different roles they play in different situations. These distinct rankings cannot be reduced to one all-purpose ordering. In particular, critics of the single-ordering hypothesis distinguish between "personal" or "self-interested" preferences on the one hand and "social," "ethical," or "moral" ones on the other.(7) The variant of this distinction most directly bearing on provision and regulation of public goods focuses on the difference between the preferences people express in their "consumer" role and those they express in their "citizen" role.

      The mere identification of different sets of preferences does not imply that the preferences declared in a person's "social" role are more virtuous or noble than the ones revealed in her "private" role, or that the former alone should form the basis for government regulation.(8) Proponents of the more specific consumer/citizen distinction, however, usually make the further claim that citizen preferences represent finer, more benevolent views concerning the common good. They therefore argue that this type of preference is the proper input for social decisionmaking.(9) The superiority of citizen preferences is commonly deduced from quasi-empirical observations of human behavior in various situations. For example, in their capacity as consumers, people may show no interest in the natural environment and refrain from visiting beautiful sites. Indeed, in day-to-day life, individuals frequently behave in a way that actively damages the environment--for example, by littering and polluting wilderness areas and parks. Yet, when answering public opinion polls, the same people (or at least some of them) demand that...