Comments

Robert Ferber, University of Illinois
[ to cite ]:
Robert Ferber (1981) ,"Comments", in NA - Advances in Consumer Research Volume 08, eds. Kent B. Monroe, Ann Abor, MI : Association for Consumer Research, Pages: 545-546.

Advances in Consumer Research Volume 8, 1981      Pages 545-546

COMMENTS

Robert Ferber, University of Illinois

The three papers on which I have been asked to comment deal with a variety of different issues related to consumer behavior in the public sector. The first paper, by Deacon, deals with opposing views on whether the consumer, as a voter, exhibits economic rationality in making choices at the polls. The second paper, by Vehorn, raises the question of the extent to which consumers are likely to substitute private goods for public goods in their purchasing behavior. In contrast to these first two largely theoretical papers, the third paper, by Pfaff and Kistler, seeks to present empirical information on the desirability of providing consumers with better information about public programs. Since these papers are so distinct, it seems best to discuss each of them separately.

The focus of the paper by Deacon is to question whether voters are indeed as well informed and economically rational as is made out for them in voting models. Although I am not that well acquainted with this literature, the studies cited in this paper, especially those referring to the desire by voters for maintenance of the status quo, would seem to cast doubt on the hypothesis of economic rationality as usually defined. Certainly, the latter finding suggests that voters are influenced more by habit persistence than by any desire to bring marginal benefits into line with marginal costs.

One other key question discussed in this paper is whether majority rule leads to competitive or noncompetitive equilibrium. As the paper points out, the evidence on this point is mixed. My own hunch is that the evidence will continue to be mixed, since much is likely to depend on the particular situation. If a governmental body is in firm control, with an electorate that is either passive or relatively satisfied, noncompetitive equilibrium is much more likely. On the other hand, if things are in a state of ferment or the governmental body is unsure of having the support of the voter, competitive equilibrium would seem to be more probable.

From an empirical point of view, I am not convinced that the finding that voters prefer "no change" indicates competitive equilibrium. Survey experience suggests that such statements are as likely as not to reflect lethargy on the part of the respondent, or lack of information, as well as satisfaction with the status quo. It is not clear from Deacon's paper whether any attempt has been made in these prior studies to distinguish among these different possibilities.

It is also not too clear from this paper what exactly is the meaning of "majority rule equilibrium." In theory, this equilibrium is based on the median of the individually preferred outcomes. In practice, however, it is not clear how well defined this median may be, how it may be estimated and how stable it may be over time. Possibly the other studies mentioned in the paper have dealt with this problem. To me, however, this seems to impose all sorts of informational requirements on the voters that may be highly unrealistic.

The Vehorn paper deals with another aspect of market efficiency, namely, the substitutability between public and private goods. In fact, this paper might just as easily have been titled, "Complementarity and Substitutability between Public and Private Goods." In many instances, it is clear both from the paper and personal observation that private goods do not seek to substitute for public goods, but to complement them. This is true, for example, in the case of protection services, purchase of insurance and various aspects of transportation.

It might also be noted that the finding of substitutability was based on analyses where governmental divisions were the unit of observation. A very different result could be obtained if the unit of observation were the individual family, something which would seem to be more meaningful if the focus is on understanding consumer behavior.

At the same time, there is no question that substitutability is definitely present and, as Vehorn points out, exists in the case of education. On that topic, however, I feel that one question posed in the paper is a rather odd one, namely, "What is the effect of private education on the provision of public education?" Certainly, the experience of the last few decades suggests that private education springs up in response to inadequate public education, so that perhaps the more meaningful question should be the effect of the provision, and quality, of public education on private education.

Perhaps the basic question relates to the type of services being demanded by the consumer. If these services are not being supplied by the public sector, the chances are very high that an industry will arise in the private sector to meet this need. At the same time, it should be recognized that particular services may be sought from the private sector even though they may also be available from the public sector, if the latter services are not adequate or sufficient in the mind of the consumer. It is for this reason, for example, that the life insurance industry has been flourishing despite the growing importance of the Social Security System.

Whether one refers to these services or goods as attributes or something else, one principle is still the same. (Incidentally, it is about time that people stopped referring to the attribute approach of Lancaster as "a new approach to consumption"; it is now nearly 15 years since this theory first appeared.) The fact remains that even though public services may be adequate for the majority of the people, they may still not be adequate for enough others, so that it pays for the private sector to get involved in providing similar services.

The conditions under which the provision of such private services will flourish has received some study, as noted by Vehorn, but it is also clear that much more study of this question is needed. Moreover, with the growing taxpayer revolt and the desire to minimize government involvement in the economy, such studies should hopefully also provide information on the extent to which various services should be provided by the public sector, and the extent to which supplementary services should be left to the private sector.

The paper by Pfaff and Kistler presents some survey data and comes to the conclusion that, "increased understanding of and more information about public transfers is needed on normative as well as practical grounds." These are very logical conclusions. The only problem is that it is not at all clear how they follow from the data presented in this paper.

In fact, two sets of data are presented. One set of data (Table 1) gives the results of an opinion poll taken of some undefined population, with no indication of sample size or possible statistical significance, and with no explanation of the data. What it seems to provide is estimates of the percentages of different population groups having different attitudes toward the retention of grant-in-aid programs to old-age insurance, and to unemployment insurance, respectively, though the percentages do not total 100 percent. On the basis of these data, the conclusion is drawn that "more information especially about the situation of other people and groups could lead to a reconsideration and reevaluation of one's own relative position compared to that of others with regard to the public budget constraints . . . understanding the necessity to assume burdens and to aid others could curb an excessive inflation in demand.

Actually, what this table shows is that, for example, people receiving old-age insurance very much favor the continuation of such a program, and a substantial proportion also favor unemployment insurance. Similarly, people receiving public assistance (many of whom may also be receiving old-age insurance, but this is not clear) also heavily favor unemployment insurance.

If these data indicate anything, therefore, it is that people are very much influenced by self interest in their attitudes on public transfer programs. Moreover, they are likely to favor public transfer programs other than what they are receiving, possibly out of a feeling of sympathy and the need for mutual support to ensure maintenance of their own program. Since there is no indication in this table as to which respondents have more information or less information, the authors' earlier cited inference on the importance of information would seem to have no basis whatsoever.

The second conclusion, drawn from Table 2, seems equally doubtful. It is that "we can conclude that consumer information is an important prerequisite for systems performance." This conclusion is based on a table which shows a positive relationship between satisfaction with informational activities by young people in Augsburg and satisfaction with transfers to their own group. However, the same table shows almost equally strikingly that those who are satisfied with informational activities are much more likely than the dissatisfied to believe that one cannot influence democratic processes. Moreover, those who are satisfied with informational activities seem to have no more political interests than those who are dissatisfied.

Perhaps this table can be interpreted differently, for once more the data are not explained, and percentages do not add up to 100 percent. Also, a symbol, epsilon, is presented with no explanation of its meaning.

Under the circumstances, one can only agree with the later statement in this paper, "the conclusion that informed consumers would help create a more rational transfer policy and reduce selfish aspirations surely is obvious, but difficult to prove." Whether this point can be proven or not, at the least one would hope for a more meaningful framework for investigating this question and a reasonably careful empirical analysis.

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