Should the disabled pay their own way?

A blind couple are outraged that they got charged extra at a hotel when their dogs allegedly moutled all over the place and required extra cleaning work to be done. There appears to be some dispute over exactly what happened, and the manager of the hotel is clearly a PR disaster area, but is it fair that the couple should have been charged extra if it cost the hotel more to accommodate them?

Well, ordinarily, it makes sense to charge more when the cost of providing a service increases; however, it seems unfair to penalise those who are already disadvantaged through no fault of their own. Yet requiring hotels to house them and imposing the cost on the hotel owners also seems unfair: why should the hotel owners pay the entire cost of accommodating a few individuals’ disabilities? Since most people would like to see services provided for disabled people, yet few people are willing to individually pay for them, the obvious solution is to spread the cost over everyone.

There are two obvious ways to do this: first, the government could make it an offence to refuse service on the basis of a disability or to charge a different rate to a disabled person for providing a service. This would force service providers to spread the cost of providing services to the disabled over all of their customers. Prices would rise very slightly and everyone who used the service would subsidise the disabled people who also used it. The drawbacks is that this method spreads the costs only over those who use the service, not the entire population who profess to care about the welfare of the disabled. It may also be difficult to police discrimination against the disabled. As a business, finding a method for reducing the number of disabled people using your service may allow you to cut your prices and gain an advantage over the competition. It may thus create a perverse incentive for businesses to find a way to circumvent the law.

Secondly, the government could directly subsidise the provision of services to disabled people. This has the benefit of spreading the costs of service provision over the entire tax paying population; however, it is likely to be a more cumbersome scheme with far higher administrative costs.

In either case the goal is to create a system which treats the disabled in an equitable fashion, without imposing unnecessarily harsh costs on any individual members of society. Unfortunately, mechanism design is not my forte, so does anyone with more talent and experience know of better schemes?

  • CPW

    Why not just a lump sum payment (or annual stipend) to the disabled, and let people charge what they like? That seems simplest from an administration point of view and most efficient economically given that the extra charges reflect real costs.

  • I guess that’s the type of thing I was suggesting as a subsidy of sorts. However, disabled people don’t use services equally, and it seems unfair to give a company CEO who travels regularly the same stipend as someone on a disabilities benefit who stays at home much of the time. Obviously the CEO could better afford to pay, but she’d still be disadvantaged relative to able-bodies CEOs which is what I think is unfair. I think a subsidy should target the provision of services rather than just the population of disabled people.

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  • CPW

    No, I disagree. The goal here is to compensate people for the unfairness of the disability – there’s anything unfair about being charged more when you require more expensive services. I think it would be unfair to give your CEO more than someone who worked from home assuming equivalent disabilities.

    I’m thinking of this in terms of indifference curves. A disability makes consumption of some goods and services more expensive than others. Our goal is to compensate the disabled with a level of income that puts them on the same level of utility as they would have had with no disability (which we can do with an income transfer), but not to ensure that they have the same consumption bundle that they would have had absent the disability (which is what you’d be aiming to do via subsidies). It’s clear that the income transfer is cheaper for a given level of “do-gooding” in this framework.

  • Well, normative goals aside, it’s not possible to compensate people through a lump sum payment since the utility cost of an identical disability is different for different people. Enabling them to achieve the same consumption bundle (if it’s possible, which it often won’t be) ensures that there is no utility cost of the disability resulting from a change in consumption. A uniform lump sum transfer won’t achieve that for anyone but the average disabled person.

  • Kimble

    “the government could make it an offence to refuse service on the basis of a disability or to charge a different rate to a disabled person for providing a service.”

    In this case it wouldnt make a difference. The dogs moulted all over the place. The extra cost wasnt due to a disability, it was due to hairy dogs becoming less hairy.

  • Hi,

    Interesting points as always, I just have a few questions:

    “Prices would rise very slightly and everyone who used the service would subsidise the disabled people who also used it”

    1)Unless we have reasonably strict enforcement, Isn’t it also possible that prices would not change, and disabled people would miss out on rooms – after all a hotel could just say that it is full.

    Also

  • Oppps, seems tab posts a comment 🙂

    Anyway continuing

    2) If the scheme is enforceable, the business loses out from having to charge a higher price if it wouldn’t have earlier (when it could price discriminate in a sense). In a sense we are stating that we value the choice of the disabled person above the choice of the property owner – is this not just a value judgment.

  • Kimble:

    Ha, I think that is semantics, really: the hotel had a policy of refusing dogs so charging extra for the dogs effectively discriminates on the basis of disability. I’m fairly confident that indirect discrimination is recognised under NZ law, but perhaps someone who knows about it could clarify the situation?

    Matt:

    1) I agree, that’s why I said enforcement would be difficult: there’s always a way to continue to discriminate when policing is imperfect.

    2) The business doesn’t lose out relative to its competition if they’re all required to do the same thing. However, the value judgment that disabled peoples’ right to be free of discrimination trumps businesses’ right to price discriminate is, hopefully, fairly uncontroversial.

  • “The business doesn’t lose out relative to its competition if they’re all required to do the same thing”

    Huh, wouldn’t higher hotel prices reduce demand for hotels?

    “However, the value judgment that disabled peoples’ right to be free of discrimination trumps businesses’ right to price discriminate is, hopefully, fairly uncontroversial”

    What about an individuals property rights? Is someone not allowed scope to choose who stays on their property – especially given that it will cost the owner. I’m not saying whose rights I think are more important, I’m just saying that the choice involves a value judgment.

    I’m not sure that making the firm take on the burden of the persons disability is fair, even if it is imperfect I think a lump sum payment would be a fairer way of achieving these equity goals – after all it is a natural endowment issue

  • Yes, demand for hotels might drop. I think I mentioned that the burden of paying for the extra costs would not be distributed evenly across society if that sort of regulation were put in place. I certainly think it counts against such a mechanism; however, I doubt that the magnitude of the price change would be significant.

    I don’t deny that it involves a value judgment. There are many restrictions on the free exercise of property rights and I don’t think that my first proposition would be an undue constraint. It’s a value judgment that I don’t shy from. Lump sum payments can be useful, but they obviously over compensate as many people as they undercompensate and those inefficiencies may not be insignificant. I don’t think it’s a killer blow to the idea of lump sum transfers, but certainly important enough that it shouldn’t be disregarded.

  • “I don’t think it’s a killer blow to the idea of lump sum transfers, but certainly important enough that it shouldn’t be disregarded.”

    Very good, I like your style 😉

  • CPW

    “It’s not possible to compensate people through a lump sum payment since the utility cost of an identical disability is different for different people.”

    Well, if we’re going to stick to what’s possible we can’t really compensate people through subsidies either because there’s no way to identify the consumption basket they would have chosen if they weren’t disabled. The point still holds that for any given utility curve the cash transfer is cheaper than the subsidy (and that’s even before we consider the externality cost of subsidizing things to below their true cost). Choosing an average level of compensation for everyone with a given level of disability seems like a pretty common real world solution, and a relatively fair one when there’s no way ascertain the individual cost of a disability.

  • “…there’s no way to identify the consumption basket they would have chosen if they weren’t disabled”

    Well, there doesn’t need to be if you subsidise such that the prices faced by the disabled are the same as the prices faced by able bodied people.

    “The point still holds that for any given utility curve the cash transfer is cheaper than the subsidy”

    That’s certainly true, but there are, of course, costs associated with the inefficiency of lump sum payments. I’m not wholly opposed to lump sum payments, but I don’t think that it’s a theoretical slam-dunk either way 😉

  • CPW

    For the specific example cited in your original post I’ll accept a subsidy is more efficient than cash (assuming we can’t trust blind people to tell the truth about their intended motel consumption). I think in terms of a general principle and a practical policy for how we compensate the disabled (assuming we and they think compensation is justified) cash transfers are better.

    “Well, there doesn’t need to be if you subsidise such that the prices faced by the disabled are the same as the prices faced by able bodied people.”

    The price for cleaning a soiled room is already the same, it’s the fact that being blind makes you more likely to soil it in this case. A good example of how subsidies are inefficient is the cost of food and care for the guide dog. I think your principle suggests society should pay for this as well, but this is “over-compensation” in the case where the person would have owned a dog regardless of being blind. Or, how many taxi chits should we give out to replace the ability to drive? It just seems that before long you’re going to have to settle for an average cash disbursement.

    I suspect the general result I’m searching for is that subsidies are only efficient where blindness perfectly discriminates between the high cost and the low cost users.

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