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January 18, 2008

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Dean Karlan

Eric --

glad to see you find the site engaging.

as a development economist I have to pipe in here with reference to your statement "But this lost pound also means that some child will go unfed, or some whale unsaved, or some rain forest unpreserved, or some tot untoyed."

We would disagree with this point for several reasons.

First of all, relative to no contract at all, what is the counterfactual use of the funds? Yes perhaps a fraction to charity, but the typical charitable contribution rate out of income is about 2%.

Second, in equilibrium and proper expectations, one does not enter into such a contract if they won't fulfill it. So if one succeeds, you have all the same cash you had before had you not entered into the contract (and maybe more, if you stopped smoking or eating too much, although now perhaps you need to save more too in order to afford that longer lifespan).

Third, spillover effects: if one fails, then yes the money can go to charity, but also has adverse effects on the ability of others to reach their goals (i.e., if the site fails because too few succeed, then the site will go away, even if it works for some people). So there is a spillover effect, and failure by one has a cost to others. I will be the first to admit i do not know how to quantify that in any reasonable way, but the point is just that from a societal perspective your "failure" has a gain (the $ you are donating) and a cost, and we do not know the net effect.

Lastly, again an equilibrium point, this time more of a general equilibrium point, if this works and lowers overall obesity and smoking rates, this will be good for taxes and growth and prosperity for the economy and society as a whole.

again, thanks for the post. it is fun to think about these things.

-- Dean

ps: If you have jerks for friends who will do what you suggest, and you can't resist them, then you shouldn't write the contract in the first place! Maybe you should hang out with your enemies more, they will help you reach your goals.


St. Darwin Assissi's cat

Dear Professor Posner,
This blog is too FUN. Glad to see all of you brilliant economic legal sorts are having a good time concurrently improving health and planet....ya all rock.
Fan

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