Universal healthcare and superannuation, and the cost of thinking ahead

If doing actions that reward a future self is perceived as costly could we justify these actions.  If thinking about our wealth, human capital, or ability to live in 10 years time is inconceivable, will me over consume now?

In essence this sort of discussion is saying that we discount our future selves TOO steeply (compared to whatever the underlying presumption of a “fair discount factor” is).  Is this a fair value judgment to make in policy?  It is not one I would make, but it appears to be the basis of some overaching policies such as universal healthcare and superannuation.

In this case, we don’t need to worry about a “moral hazard problem” even though (empirically) the actions of moral hazard will appear.  Why?  Because the actors aren’t thinking about the future selves and so these “inefficient” outcomes would have occurred in the first place!  Policy helps to correct this by transfering resources to our future selves to improve outcomes relative to the REAL counterfactual (rather than the idealized one where agents choose on the basis of our subjectively fair discount rate).

I think it is important to keep this issue in mind, because it is a closet behavioural assumption behind most policy.  If we buy this value judgment, then we will believe in a larger role for government then if we didn’t.

  • http://offsettingbehaviour.blogspot.com/ Eric Crampton

    I’m more worried about how I’m massively underweighting the preferences of my 5 year old self, who surely would object to much of what I’m now up to.

    If we’re going to worry about our present selves screwing over our future selves, what of the harms our present selves do to the wishes of our past selves?

    Moreover, don’t we have reasonable evidence that whatever discounting problems individuals might have, governments can barely see past the next election? I have a hard time buying that the government places more weight on my future self’s preferences than I do.

  • Augustus

    There are hundreds of examples of government planning and policy that reaches further than 3years.

    Eric Crampton’s personal attributes aside, there are large parts of society that do not actively plan for their future. Obesity, savings rates, smoking – its pretty easy to find examples of people living without consideration of the long term costs. Whats the correlation between those least likely to plan for their future self and those least likely to afford the costs of their future self? And presuming you don’t live in a hermetic vacuum, whats your plan for them?

  • http://www.tvhe.co.nz Matt Nolan

    @Eric Crampton

    @Augustus

    I was raising this as a value judgment – but I was not judging either way.

    Personally I think individuals have a better idea of their discount rate – and I think the idea of discount rates are moral. There are of course schools of thought against both these points.

  • http://offsettingbehaviour.blogspot.com/ Eric Crampton

    @Augustus: Might not the moral hazard be caused by folks knowing that government will bail them out if they fail to plan for their future selves?

    Plan for smokers? Health system treats them as best they can using the money that smokers paid in via excise taxes that are roughly three times higher than smokers’ aggregate health costs even leaving aside time discounting (govt could earn money on tobacco excise against the future costs).

    I’m not sure what plan is needed for high time discount folks given that we already have a superannuation system. If we were arguing for its elimination, then we’d need to address that: I’d tend to recommend a slow phase in that’s age-linked along with compulsory superannuation payments as being something that’s least bad. But I haven’t fixed strong views on which alternative would be best.

    Obesity? Why not worry about ladies dating cads too? Do folks have any scope to make choices that differ from yours in your ideal world?

  • http://www.tvhe.co.nz Matt Nolan

    @Eric Crampton

    “Do folks have any scope to make choices that differ from yours in your ideal world?”

    BTW, tell that to Mr Palmer