Because most philosophies that frown on reproduction don't survive.

Wednesday, June 22, 2011

Moral Sense and Unequal Exchange

Every week I make a point of finding the time to listen to the EconTalk podcast -- a one hour interview on some economics related topic conducted by Prof. Russ Roberts of George Mason university. Roberts himself has economic and political views I'm often (though not always) in sympathy with, but he's a very fair and thoughtful interviewer and has a wide range of guests. This week's interview was with a semi-regular on the show, Prof Mike Munger of Duke University, and the topic was the concept of euvoluntary exchange which Munger has been attempting to create.

Munger's project aims to identify why it is that some seemingly voluntary transactions are seen as morally repugnant by most people, and are either socially disapproved of or outright outlawed. So for example, say that Frank is very poor and desperately wants to provide for his family. Tom is very rich and is loosing eyesight in both his eyes. His doctor believes they can pull off a revolutionary new surgery and transplant a healthy eye into him, but they need the eye of a live, healthy person who matches Tom's blood type and DNA well. Frank is a match and is willing to give up an eye in return for a million dollars.

Now, there are a few people who lean heavily in the rationalistic direction who would say this sounds like a great idea because it makes most people better off, but most people would react to this with revulsion, and it is in fact illegal to do this kind of thing in the US.

The interesting thing is that voluntarily donating an organ (so long as giving it up isn't considered too big a detriment to you) is considered morally admirable, and is legal. So, for instance, there was a case a year or two ago in our parish where one young woman in the parish donated a kidney to another parishioner who needed a transplant.

Munger's argument is that in the Frank and Tom example, the transaction may seem voluntary but it's not really voluntary because of the disparity in means between Tom and Frank. Transactions that are really, truly voluntary (euvoluntary) are, he argues, always just, at least, in and of themselves as transactions. This is leaving aside the question of whether the thing one seeks to procure is something which you should have or not -- say weapons grade plutonium.

The reason why we're comfortable with someone donating a kidney but not with someone selling a kidney is that in the case of selling the kidney we assume that someone may be doing the act out of desperate need for money rather than a true desire to help. Thus, we approve of the donation of the kidney because it is clear that it's motivated out of a sincere desire to help the other, but we deprecate the selling of a kidney because we fear that someone is being taken advantage of.

To distinguish between euvoluntary and non-euvoluntary transactions, Munger suggests that we'd look at the BATNA or Best Alternative to a Negotiated Agreement.

The example that he gives is as followed (rewritten because the transcription is a little hard to follow, sounding too much like conversation): Say you walk into the grocery store and you see that they're selling bottles of water for $1000. This is totally outrageous, but there's another store right across the street selling water bottles for $0.99, so rather than getting upset you walk across the street and buy water for a dollar. The $1000 price may be stupid, but it isn't seen a really wrong because your alternative to paying that $1000 price is just a five minute walk and a good laugh.

Now, say you've been lost in the desert for two days and you're on the point of dying of thirst. Someone drives up in a Jeep and you ask him if he has a bottle of water. "Sure," he says, "But it'll cost you $1000." When you hesitate, he starts to drive away, leaving you to die. So you agree to give him $1000 for his water.

I think most people would agree that this was an incredibly unjust thing to do, and the reason, Munger argues, is because there's a huge disparity in BATNAs between the two parties in the exchange. If the guy in the Jeep doesn't make the sale, he just drives on and is none the worse. If I don't buy, I die. Thus, the transaction is seen as unjust because it's not really free -- no more so that if he put a gun to my head and demanded a thousand dollars -- even though both parties are, on the face of it, better off because of the transaction. (You don't die of thirst and the guy in the Jeep has $1000.)

Now, I'm not entirely sure whether this is a moral intuition that we have (we certainly treat it as one) or if it's just a matter of social conditioning: we as Americans don't like things which we see as unequal or unfree. But it becomes an important question because through this moral sense we sometimes avoid transactions which could arguably benefit both parties a lot -- usually the "unfree" one far more than the better off one. Russ Roberts provides some interesting anecdotes later in the interview:
[These are from the show transcript, so forgive the conversational tone.]
[O]ne of the students in the class told me a story I found fascinating and that relates to what we've been talking about. She had been visiting in Nepal, and she had clothes that needed cleaning; and she found out she could hire a washer woman to do your clothes for you. No washing machine or laundromats where she was. So, she went to hire someone and the wage was so appallingly low--let's say it was ten cents an hour--she was so horrified that she decided not to hire this woman. It would be exploitative.

I said: You've exploited her by not exploiting her. Maybe she'll only find something much worse. Maybe she'll take it voluntarily, not euvoluntarily. She was looking for work. Maybe she had a hungry child or needed money for medical care; she was desperate enough to work for ten cents and hour; and the student refused to engage in this transaction allegedly because she cared about the woman. As an economist this is very difficult to understand. The more I thought about it, the more I understood it.

When I tell this story to my students, one of the reactions is always: She should have paid her more. Then you ask the question: How much more? American minimum wage? American living wage? And if you offered her $10 an hour instead of ten cents an hour, what would her reaction be? Would she be thrilled? Offended? Where would the line form when the word got out that you were paying 100 times the going rate. There'd be a giant rent-seeking contest. How would you deal with that. I put myself in my student's shoes and tried to think about why you could come to that conclusion and feel good about it. It's the disparity in betnas. This is a student who was going to come back to American life, earn an extraordinarily large income by Third World standards and perhaps even a decent income by Western standards, and certainly compared to this woman. The gap between their wellbeing was so large over a lifetime that this was simply an unimaginable transaction. It's as if that transaction is inherently exploitative, not because of the features of the transaction, but because of the disparity in betnas. Because both people clearly could be made better off? Why wouldn't you joyfully engage in this transaction? She couldn't do it. The punchline to the story is that she did her own laundry, threw out her shoulder, and ended up hiring the woman anyway eventually.
The personal experience that I had like this was I was once house sitting for someone while I was in Santiago, Chile, working at a think tank there the summer between years in graduate school. And it turned out that with the house there was a cook. So, I came home the first day I was house sitting and I put my feet up on the coffee table to read the newspaper, and a woman comes out of the kitchen and asks me in Spanish what I'd like for dinner. And I said: What do you mean? And she informed me she was the cook and was going to make whatever I wanted. And I was extremely uncomfortable with this; I said: Well, make whatever you feel like. And she was extremely uncomfortable.

So we eventually came to some conclusion about what she was going to cook, and she's in the kitchen cooking and I'm in the living room reading and I realize this is making me very uncomfortable. This woman is cooking for me who I'm only implicitly paying. She was being paid, but only a small amount. I went into the kitchen to chat with her, which totally violated the social norms; she was very uncomfortable. We proceeded to have an awkward conversation in very bad Spanish. I asked what music she liked; she liked Frank Sinatra and Julio Iglesias. I came to like Frank Sinatra.

[Munger] It's painful to hear this.

[Roberts] The next part was the more interesting part. I thought, sports is something people have in common; I asked her what her favorite football, soccer team. She rooted for Colo Colo, which is what the poor people in Santiago rooted for.

[Munger] You could see that coming.

[Roberts] And of course, all my friends rooted for Universidad de Chile. And I have to mention--what I loved about soccer in Chile, when my friends told me that was their favorite team I asked how it was tied to the University of Chile. They said: Well, there isn't one. I said: What do you mean? They said: They just use the name of the school. I thought how nice, because in America we pretend that the people with the name of that team are associated with the school--in fact, they are kind of like employees, unpaid employees in college. But here they actually totally sever the connection. The Duke University basketball team could be, like, the Celtics. But anyway, I realized again the disparity in our lifetime situations was just inherently uncomfortable. I did not like this woman cooking for me.

[Munger]You felt you were exploiting her somehow.

[Roberts] Right, and I was trying to soften that by chatting with her. As if that was going to help. Oh good, he came in to chat with me--

[Munger]--is he going to grab me?

[Roberts] Not just that. I don't think that was the worry. First, I violated the social norm that I'm trying to make conversation with her, and two, my conversation is not very good; all it does is enhance the feeling that I'm the Universidad de Chile fan and she's the Colo Colo fan. It was a total failure. I would have much preferred that she would not cook for me. I didn't want her there. I didn't want her to do that.

[Munger] Maybe even to the extent of if they had offered, you wouldn't have fired her, but if you said--maybe they'll give her a sabbatical, we'll give her the month off. And they wouldn't have paid her.

[Roberts] I would have said: Great!

[Munger] My question is: how much would you have paid to avoid having to deal with that, with that sense of exploitation?

[Roberts] The answer is some. Maybe even up to the point of saying: Lay her off for a month.

[Munger] Even though you wish her no ill.

[Roberts] Correct. It was an uncomfortable experience. It gave me an insight into my student, when I thought back on it. I think it's really no more complicated than that--just having such a big disparity in life situation. And in particular, if some of my life situation is contingent on the consummation of this contract. That explains why all of these different transactions are illegal, why all of these different situations we feel bad about if not formally illegal. Maybe it's not a transaction, but a sort of social relationship.
This is pretty much exactly the kind of thought process which often causes people to impose regulations (say relating to third world manufacturing, or to child labor) which end up hurting the people they seek to help. No question, it's appalling that people should be working away for fourteen hours a day sewing undershirts for only $2 a day, or that twelve year old kids are working in factories, but often these "sweatshop" and "child labor" conditions have waiting lists, because the alternatives for those seeking work are picking over garbage heaps or being sucked into prostitution at age 12 rather than factory work.

To the extent that we often leave people in even worse conditions for fear that engaging in business with them would be exploitive, it seems like the effort to understand why we make these moral intuitions (and how valid they are) is important. I'm not sure that Munger has really got much further than describing the phenomenon, but it seems an interesting and important first step.


Anonymous said...

I disagree with you there, Darwin. I don't think it's a huge mystery:

My profit shouldn't come at someone else's loss.

How much should you pay the Nepalese laundry lady and the Chilean cook? Enough that they can make a living.

And you don't buy organs off people because to do so is to *damage* them. You really want to help someone who can't feed their feed family? Then feed their family. Or hire them for a job that will feed their family.


Josiah Neeley said...

While Prof. Munger may be onto something with his euvoluntary idea, his BATNA criterion is clearly wrong.

Take the example of the guy who wants to sell me water for $1000 when I am dying of thirst in the desert A transaction is not euvoluntary if the disparity in BATNAs is too great. Suppose, though, that the guy says “hey, you’re our 1000th customer, so you get a bottle of water on the house!” In that case the disparity in BATNAs is even greater than if he charged me $1000. On the other hand, the more he charges for the water, the less disparity in BATNAs there will be.

Additionally, I don’t think it’s right to say, as Munger does, that if a transaction is euvoluntary then it is necessarily just. In the case of organ donations, for example, you can’t pay for a kidney even if the person you pay has the same standard of living as you do, and I don’t believe you would be allowed to make a live donation of your eyes even if no money was involved.

Josiah Neeley said...

I disagree with you there, Darwin. I don't think it's a huge mystery:

My profit shouldn't come at someone else's loss.

The problem is that in Darwin's examples both people are better off (indeed, the lion share of the benefit is going to the poor person). So it's not the case that my profit is coming at another person's loss.

Josiah Neeley said...

And you don't buy organs off people because to do so is to *damage* them.

If buy an organ off of someone is doing damage to them then presumably the same would be true if they just gave it to you. The physical aspects of an organ donation don't change because some green slips of paper changed hands.

Bob the Ape said...

I don't know if this helps or not, but I am reminded of the passages in G. K. Chesterton's Father Brown story, "The Queer Feet":

A waiter came swiftly along the room, and then stopped dead. His stoppage was as silent as his tread; but all those vague and kindly gentlemen were so used to the utter smoothness of the unseen machinery which surrounded and supported their lives, that a waiter doing anything unexpected was a start and a jar. They felt as you and I would feel if the inanimate world disobeyed -- if a chair ran away from us.

The waiter stood staring a few seconds, while there deepened on every face at table a strange shame which is wholly the product of our time. It is the combination of modern humanitarianism with the horrible modern abyss between the souls of the rich and poor. A genuine historic aristocrat would have thrown things at the waiter, beginning with empty bottles, and very probably ending with money. A genuine democrat would have asked him, with comrade-like clearness of speech, what the devil he was doing. But these modern plutocrats could not bear a poor man near to them, either as a slave or as a friend. That something had gone wrong with the servants was merely a dull, hot embarrassment. They did not want to be brutal, and they dreaded the need to be benevolent. They wanted the thing, whatever it was, to be over. It was over. The waiter, after standing for some seconds rigid, like a cataleptic, turned round and ran madly out of the room.

Anonymous said...

What I find interesting was how, in both these stories, treating another with dignity is so explicitly linked to a feeling economic parity of the parties.

Darwin said...


My profit shouldn't come at someone else's loss.

How much should you pay the Nepalese laundry lady and the Chilean cook? Enough that they can make a living.

I'm not sure that these are actually what's operative here for the reasons that Edward lists above: The Nepalese laundry lady would have been better off if she'd got work from the student at her usual rates than if she'd got none at all.

Even more oddly, if the student had been staying with the Nepalese laundry lady, and the lady had offered to wash he clothes for free (since she was a laundry lady by trade) he student probably wouldn't have been worried by that, even though it would have benefited the laundry lady less than being paid ten cents an hour. It was specifically being asked to pay a very small wage that caused the problem.


While Prof. Munger may be onto something with his euvoluntary idea, his BATNA criterion is clearly wrong.

Take the example of the guy who wants to sell me water for $1000 when I am dying of thirst in the desert A transaction is not euvoluntary if the disparity in BATNAs is too great. Suppose, though, that the guy says “hey, you’re our 1000th customer, so you get a bottle of water on the house!” In that case the disparity in BATNAs is even greater than if he charged me $1000. On the other hand, the more he charges for the water, the less disparity in BATNAs there will be.

I may be misunderstanding this, but I was taking his assessment of BATNA to be a question of "how much worse does my situation get, compared to the current state, if no transaction takes place."

In that situation, the guy in the desert is going to die if he doesn't get water, so things get much worse for him if he doesn't get the bottle of water, no matter what the price. For the guy in the Jeep, he's in exactly the same situation as before if he doesn't make the sale -- he doesn't have the extra money that would come from price gouging, but he does still have the water, the Jeep, and one assumes a way to get out of the desert.

If I'm right on this, I think Munger would say that the BATNA is the same regardless of the price charged for the water -- but that because the disparity in BATNA is so high, we only feel morally comfortable with the water being given for free or for a "fair" price, not with a high price.

Bob the Ape & geeklady,

I think you may be onto something there that a big part of this is simply discomfort in dealing with people on an unequal economic footing -- with non-monetary transactions being excluded because they feel more equal than paying for something.

I especially like the Chesterton quote.

Anonymous said...

D&E: I think that if the two of you are utilitarians, you are correct, Per that moral philosophy. (Which is wrong wrong evil-wrong.)

But asking normative economics to explain its own norms, is like asking science to explain the design criteria on an engineering project.

Econ and science tell us facts. What will happen if x or why.

Normative Econ and Engineering tell us how to achieve a goal. If we want ____, how do we get it.

But none of these tell us what goals to want. Which is why when we use them to form our goals, we are unsatisfied.

Because we know that people are not objects, and that maximum utility is not a sufficient end.

Darwin said...


I'd certainly agree that economics as a discipline is completely incapable of addressing questions of "ought" -- moral questions, aesthetic questions, etc. (Indeed, it seems to me that Munger is clearly doing some kind of philosophy or ethics here, not economics.)

That said, while I'd agree that "people are not objects, and that maximum utility is not a sufficient end", I guess I'm unclear how it applies to the examples discussed.

With the laundry lady -- the student chose to not employ her at all (refusing to provide any material benefit to her) rather than employ her at a customary rate which the student thought was disgracefully low.

I can certainly see a moral argument that, having the means, the student should pay the laundry lady more than the customary rate. (And actually, in a one-off relationship like that, as opposed to, say, setting up a whole laundry facility, I don't think there would be the rent seeking issues that Roberts and Munger discuss.) But it does seem very odd to me that faced with these situations many people consider the more moral response to be not to employ someone at all (thus providing them with no benefit) rather than employing them on unequal terms.

Josiah Neeley said...


The BATNA doesn't change depending on the price of the water. However, according to Munger's criterion, what matters is not the BATNA per se, but the *disparity* between the BATNA and the transaction.

For example, suppose we say that not dying is worth a million dollars to me (purely for purposes of illustration, mind you). If I have to pay $1 for the water, the disparity between the transaction and my BATNA is $999,999. If I have to pay $1000, the disparity is $999,000. If I have to pay $100,000, the disparity is $900,000, and so on. The more I have to pay, the less the disparity between than transaction and my BATNA.

Suppose you're right, though, and the price charged is irrelevant. In that case, there is no difference between charging the guy in the desert $1000 for a bottle of water and charging him nothing. Both transactions have the same BATNA. If one is not euvoluntary, then neither is the other. So if Munger's account is right, people should want to ban giving water away for free to a guy in a desert just as much as they want to ban charging him $1000. But they don't. So it's not.

Darwin said...

The BATNA doesn't change depending on the price of the water. However, according to Munger's criterion, what matters is not the BATNA per se, but the *disparity* between the BATNA and the transaction.

Hmmm. I guess what I had taken Munger to be arguing (and what I think I said above, unless I mis-spoke) if that he takes it to be a problem (a lack of euvoluntariness) to have a financial transaction in which there is a large disparity in the BATNAs of the two parties in the transaction.

If your reading is correct, then yeah, his claim is totally incoherent and doesn't even apply to his examples.

Anonymous said...

Darwin, finally getting back to this - thanks for your patience.

Yes, in the laundry-lady scenario, paying her something is better than paying her nothing. But paying her enough that she can make a living is the ideal.

And not an unreasonable ideal in this case, though admittedly hard to figure out, in a place where you don't really know what costs are, etc.

So if you are unable to know what a fair wage is, the prevailing wage is certainly someplace to start.


Darwin said...

I think we're basically in agreement, then.

I guess I'd take it one step further in saying that in general, human rights abuses aside (prostitution, etc.) we should allow voluntary exchanges to take place even when they would fall short of the ideal, since even that will usually improve situations rather than making them worse.

It concerns me that often people express moral scruples in regards to inequality by suggesting that we simply don't deal with those much poorer then us at all -- thus effectively leaving them worse off (like the laundry lady not getting work.)

Darwin said...

And I'm perplexed as to why it is that we (and I say we because I share the instinct of Roberts and his student) tend to want to simply avoid such transactions rather than experiencing the discomfort of dealing with someone we feel is too far away from us on the social ladder.

Banshee said...

Obviously nobody in these stories has either a feeling of noblesse oblige, or a marketing/business instinct to learn the buying power of the usual local wage and respect the market. Or even the nosy old lady instinct to inspect the workplace and make sure everything is up to snuff, from the standpoint of justice to hired person and cleanly good value to the consumer.

Of course, it might just be that this is how an American experiences "the servant problem" -- just freefloating anxiety, without any way to deal with it, instead of having been trained to be certain of your options. A lot of American service agencies go to great pains to provide cleaning ladies or plain ol' servants without letting it feel like anything above.

I understand that in some places (like India), the social guilt is all on the side of making you hire as many servants/service providers as you can possibly afford, because otherwise you are selfish and don't spread the wealth.

Anonymous said...

I hired a cleaning lady in Chile specifically to wash my clothes because there was not a self-service laundromat in my town and I was tired of washing them myself in the bathtub.

I paid her four times the market rate because I just couldn't bear to pay her only $2.50 for half a day's work, but I did not feel guilty about employing her at all. There is nothing wrong with being a cleaning lady. It is honest work. It is just another job. And no, I was not friends with her. I am not friends with the man who fixes my car or with the waiter who bring my meal at the restaurant. We are business associates, engaging in a mutually beneficial transaction.