Saturday, November 03, 2012

If Only People and Not Activities Could Be Regulated

One of the problems with government regulations is that they fail to appreciate that people adapt to incentives (and disincentives).

It seems like a no-brainer that if you impose energy efficiency standards, we will save energy since people who light their house, heat their home, and drive to work will all see their energy costs come down from using less energy.

In fact, it is a no-brainer that when people have less expensive lighting, heating, and gas bills, they use more of all of them and nullify the savings (or even use more):

As we have managed to use less energy to provide the same service, we have actually increased our demand for energy by demanding more of that service, for instance, using more powerful cars.

The regulators assume that composite people will react as the regulators expect and simply remain static in their lighting use, the size of their house and their thermostat settings, and the quality of their car and the amount they drive.

Expect to see a lot more of this unexpected phenomenon if President Obama is reelected.