conversableeconomist

Horse Slaughter and Unintended Consequences

Buried in a U.S. Department of Agriculture bill that President Obama signed into law on November 18 is a provision that will probably lead to reopening horse slaughterhouses in the United States. The founder of the often-controversial People for the Ethical Treatment of Animals, Ingrid Newkirk, supported re-opening the slaughterhouses. She said in one interview:  “It\’s quite an unpopular position we\’ve taken. There was a rush to pass a bill that said you can\’t slaughter them anymore in the United States. But the reason we didn\’t support it, which sets us almost alone, is the amount of suffering that it created exceeded the amount of suffering it was designed to stop.”

What\’s the back-story here? Starting in 2006, Congress started placing provisions in the funding for the U.S. Department of Agriculture that prohibited government funding for inspecting horses destined for food. By 2007, this led to the shutdown of horse slaughterhouses in the United States. In June 2011, the GAO did a report on the aftereffects of the policy, and named the report: \”Horse Welfare: Action Needed to Address Unintended Consequences from Cessation of Domestic Slaughter.\”

Slaughtered in Mexico and Canada instead of the U.S.
The most obvious consequence is that instead of being slaughtered in the U.S., horses were shipped to Canada and especially to Mexico to be slaughtered instead. In 2006, about 100,000 horses were slaughtered in the U.S. By 2010, the number of horsed exported for slaughter had risen by about 100,000. Here\’s a graph of horses exported from the GAO report:



In other words, the policy didn\’t save horses.  A New York Times story reported in October: \”The closing of the country’s last meat processing plant that slaughtered horses for human consumption was hailed as a victory for equine welfare. But five years later just as many American horses are destined for dinner plates to satisfy the still robust appetites for their meat in Europe and Asia. Now they are carved into tartare de cheval or basashi sashimi in Mexico and Canada.\”

Indeed, the policy probably worsened the treatment of horses at the end of their lives. The horses needed to travel farther before being slaughtered. Their transit was no longer monitored by the USDA. And slaughterhouses in Mexico are not under USDA rules for humane slaughter. 


Indeed, in a few cases U.S. firms were re-importing horsemeat from Mexican and Canadian slaughterhouses for use in zoos. GAO writes that as of the end of 2010,  \”USDA identified at least three establishments—in Colorado, Nebraska, and New Jersey—that import horsemeat for repackaging and distribution to purchasers in the United States who feed the meat to animals at zoos and circuses.\”



Horse Abuse Expanded
As it has become logistically harder and less remunerative to send a horse to slaughter, the amount horse abuse has been rising. The GAO reported: \”Comprehensive, national data are lacking, but state, local government, and animal welfare organizations report a rise in investigations for horse neglect and more abandoned horses since 2007. For example, Colorado data showed that investigations for horse neglect and abuse increased more than 60 percent from 975 in 2005 to 1,588 in 2009. Also, California, Texas, and Florida reported more horses abandoned on private or state land since 2007. … [T]he Montana Association of Counties reported that the number of horses being abandoned by their owners has rapidly increased since horse slaughter for human consumption was halted in the United States, but the association did not have specific data. In addition, the National Association of Counties reported that the increasing abandonment problem is notexclusive to Montana or the West but is happening nationwide.\”

Although it was not possible to slaughter horses for human consumption in the U.S., it continued to be legal to bring the corpse of a horse to a rendering plant to be turned into pet food or glue. As GAO explained: \”Before 2007, horses were slaughtered in domestic slaughtering facilities only when the horsemeat was destined for consumption by humans or zoo animals. Currently, pet food and other products, including glue, may still be obtained from the corpses of horses that are hauled to rendering plants for disposal. The production of these products is not covered by the requirements of the Federal Meat Inspection Act …\” There doesn\’t seem to be evidence on this point, but one suspects that some horses that would have ended up in the slaughterhouse before were now ending up at rendering plants.

There are also concerns that wild horses might be being shipped to Mexican and Canadian slaughterhouses. USDA used to work with the Bureau of Land Management to prevent wild horses from being slaughtered in the U.S., but with USDA inspectors out of the picture, it\’s not clear

Return of the Horse Slaughterhouse
In the aftermath of the new law, the Christian Science Monitor reported: \”[M]eat processors are now considering opening facilities in at least a half-dozen states, including Georgia, North Dakota, Nebraska, Oregon, Wyoming, Montana, and possibly Idaho.\” A number of animal rights groups like the Society for Prevention of Cruelty to Animals are outraged. The president of the U.S. Humane Society, Wayne Pacelle, takes the view that all U.S. horse owners should be required to provide lifetime care for their animals. (Exercise for the reader: Consider some likely unintended consequences that would arise from such a rule.) But as Newkirk, the head of PETA, said about the end of the U.S.  horse slaughter ban: \”It\’s hard to call [the end of the horse slaughter ban] a victory, because it\’s all so unsavory. The [funding] bill didn\’t mean any horses were spared, but it does mean the amount of suffering is now reduced again.\”

conversableeconomist

True Love and Other Times When Monetary Incentives are Misguided

In the Fall 2011 issue of my own Journal of Economic Perspectives, Uri Gneezy, Stephan Meier, and Pedro Rey-Biel\” tackle issue of \”When and Why Incentives (Don’t) Work to Modify Behavior.\” Many of their well-chosen examples made me smile, but none more than this one.

\”Consider a thought experiment: You meet an attractive person, and in due time you tell that person, “I like you very much and would like to have sex with you.” Alternatively, consider the same situation, but now you say, “I like you very much and would like to have sex with you, and, to sweeten the deal, I’m also willing to pay you $20!” Only a certain kind of economist would expect your partner to be happier in the second scenario. However, offering $20 worth of (unconditional) flowers might indeed make the desired partner happier.\”

The authors point out: \”Monetary incentives have two kinds of effects: the standard direct price effect, which makes the incentivized behavior more attractive, and an indirect psychological effect. In some cases, the psychological effect works in an opposite direction to the price effect and can crowd out the incentivized behavior.\” They investigate these potential conflicts in three situations: incentives for students to learn; incentives to contribute to public goods (like being a blood donor); and incentives to make lifestyle changes like to start exercising or to quit smoking.

Here\’s their summary of their findings: \”When explicit incentives seek to change behavior in areas like education, contributions to public goods, and forming habits, a potential conflict arises between the direct extrinsic effect of the incentives and how these incentives can crowd out intrinsic motivations in the short run and the long run. In education, such incentives seem to have moderate success when the incentives are well-specified and well-targeted (“read these books” rather than “read books”), although the jury is still out regarding the long-term success of these incentive programs. In encouraging contributions to public goods, one must be very careful when designing the incentives to prevent adverse changes in social norms, image concerns, or trust. In the emerging literature on the use of incentives for lifestyle changes, large enough incentives clearly work in the short run and even in the middle run, but in the longer run the desired change in habits can again disappear. … A considerable and growing body of evidence suggests that the effects of incentives depend on how they are designed, the form in which they are given (especially monetary or nonmonetary), how they interact with intrinsic motivationsand social motivations, and what happens after they are withdrawn. Incentives do matter, but in various and sometimes unexpected ways.\”

conversableeconomist

Sunk Costs: Why You SHOULD Pay Attention

Every introductory course in economics points out that rational actors should ignore sunk costs: look forward at costs and benefits, not backward at things that can\’t be changed. But in the November 2011 issue of the American Economic Journal: Microeconomics, Sandeep Baliga and Jeffrey C. Ely offer an argument as to why rational actors should pay attention to sunk costs in \”Mnemonomics: The Sunk Cost Fallacy as a Memory Kludge.\” Those who want the mathematical model and details on the follow-up laboratory experiment need to go through a library to get the article. But in the opening pages, the authors do a nice job of providing the basic intuition.

They start with a reminder of some of the classic evidence on people paying attention to sunk cost: theater tickets and production of the Concorde supersonic jet. They write: \”In a classic experiment, Hal R. Arkes and Catherine Blumer (1985) sold theater season tickets at three randomly selected prices. Those who purchased at the two discounted prices attended fewer events than those who paid the full price. Hal Arkes and Peter Ayton (1999) suggest those who had “sunk” the most money into the season tickets were most motivated to use them. R. Dawkins and T. R. Carlisle (1976) call this behavior the Concorde effect. France and Britain continued to invest in the Concorde supersonic jet after it was known it was going to be unprofitable. This so-called “escalation of commitment” results in an over-investment in an activity
or project.\”

Here is their argument for why paying attention to sunk costs can make sense: \”We provide a theory of sunk cost bias as a substitute for limited memory. We consider a model in which a project requires two stages of investment to complete. As new information arrives, a decision-maker or investor may not remember his
initial forecast of the project’s value. The sunk cost of past actions conveys information about the investor’s initial valuation of the project and is therefore an additional source information when direct memory is imperfect. This means that a rational investor with imperfect memory should incorporate sunk costs into future decisions. … If the investor has imperfect memory of his profit forecast, a high sunk cost signals that the forecast was optimistic enough to justify incurring the high cost. For example, the willingness to incur a high sunk cost digging dry wells may signal that the oil exploration project is worth continuing. If this is the main issue the investor faces, it generates the Concorde effect as he is more likely to continue a project which was initiated at a high cost.\”

They point out various ways in the real world that this dynamic–that is, imperfect information about why a decision was made in the past–can cause current actors to treat sunk costs as useful information. \”There are a few different ways these effects can manifest themselves in practice. Most directly, the decision maker may be an individual responsible for making the initiation and continuation decision and he may simply forget the information. An organization may also forget information or knowledge. Managerial turnover can generate organizational forgetting. In this case, we can think of the investor in the model as representing a long-lived organization headed by a sequence of short-term executives. An executive who inherits an ongoing project will not have access to all of the information available at the time of planning. Existing strategies and plans will then encode missing information and a new executive may continue to implement the plans of the old executive. In our model, data about sunk costs partially substitutes for missing information and a rational executive takes this into account.\”

Finally, and intriguingly, they suggest that paying attention to sunk costs may be hard-wired into people\’s brains as an adaptive mechanism. \”Finally, we can think of sunk-cost bias as a kludge: an adaptive heuristic wherein metaphorical Nature is balancing a design tradeoff. … In our model, the sunk cost bias is an optimal heuristic that compensates for the constraints of limited memory. This can explain the prevalence and persistence of sunk-cost bias despite its appearance, superficially, as a fallacy. To the extent that heuristics are hard-wired or built into preferences, the sunk-cost bias in observed behavior would be adapted to the “average” environment but not always a good fit in specific situations. For example, we would expect that decision-makers display a sunk-cost bias even when full memory is available, and that sometimes the bias goes in the wrong direction for the specific problem at hand.\”

On this final point, I\’m not yet persuaded. But many economic decisions do unfold over time, and many of them may have a period of disutility or losses early in the process, later followed by compensating utility or gains. It would clearly be misguided to make a choice to pursue a path over time, then when partway into the process to forget about or undervalue the gains to come.

conversableeconomist

The Persuasive Power of Opportunity Costs

Shane Frederick wrote a nice short article in the January-February 2011 issue of the Harvard Business Review on \”The Persuasive Power of Opportunity Costs.\” He points out that framing choices by making opportunity costs explicit can persuade people to make certain choice–especially because the opportunity costs can be chosen to appear large or small. Opportunity cost, of course, is one of the first concepts taught in any intro economics course.

Here\’s an example from Frederick where the explicit opportunity cost appears large:

\”While shopping for my first stereo, I spent an hour debating between a $1,000 Pioneer and a $700 Sony. Perhaps fearing that my indecision would cost him a sale, the salesman intervened with the comment \”Well, think of it this way–would you rather have the Pioneer, or the Sony and $300 worth of CDs?\”
Wow. The Sony–and by a large margin. Twenty new CDs were too great a sacrifice for the slightly more attractive Pioneer. Although I could subtract $700 from $1,000 and was capable–in principle–of recognizing that $300 could be used to buy $300 worth of CDs, I hadn\’t considered that until the salesman pointed it out.\”
Here\’s an example from Frederick where the opportunity cost is framed to sound small: 

\”[Here\’s a] strategy for those offering expensive products or policies: Cast the opportunities given up as something unattractive or unimportant. An ad by De Beers did this brilliantly. It depicted two large diamond earrings with the tagline \”Redo the kitchen next year.\” Clever. It implied that the cost of the diamonds was merely a slight delay in a renovation. In fact, if a consumer spent the money reserved for the kitchen on the diamonds, it might take him or her much more than a year to save that amount again.\”

And here\’s a political example of making opportunity costs explicit, from the 1953 \”Chance for Peace\” speech given by President Dwight Eisenhower, who said:

\”The cost of one modern heavy bomber is this: a modern brick school in more than 30 cities.…We pay for a single fighter with a half million bushels of wheat. We pay for a single destroyer with new homes that could have housed more than 8,000 people.\”