## Friday, December 21, 2012

### Gun control...

Via Mark Thoma,  Steve Williamson has an excellent post about the economics of gun control:
What's the problem here? People buy guns for three reasons: (i) they want to shoot animals with them; (ii) they want to shoot people with them; (iii) they want to threaten people with them. There are externalities. Gun manufacturers and retailers profit from the sale of guns. The people who buy the guns and use them seem to enjoy having them. But there are third parties who suffer. People shooting at animals can hit people. People who buy guns intending to protect themselves may shoot people who in fact intend no harm. People may temporarily feel compelled to harm others, and want an efficient instrument to do it with.

There are also information problems. It may be difficult to determine who is a hunter, who is temporarily not in their right mind, and who wants to put a loaded weapon in the bedside table.

What do economists know? We know something about information problems, and we know something about mitigating externalities. Let's think first about the information problems. Here, we know that we can make some headway by regulating the market so that it becomes segmented, with these different types of people self-selecting. This one is pretty obvious, and is a standard part of the conversation. Guns for hunting do not need to be automatic or semi-automatic, they do not need to have large magazines, and they do not have to be small. If hunting weapons do not have these properties, who would want to buy them for other purposes?

On the externality problem, we can be more inventive. A standard tool for dealing with externalities is the Pigouvian tax. Tax the source of the bad externality, and you get less of it. How big should the tax be? An unusual problem here is that the size of the externality is random - every gun is not going to injure or kill someone. There's also an inherent moral hazard problem, in that the size of the externality depends on the care taken by the gunowner. Did he or she properly train himself or herself? Did they store their weapon to decrease the chance of an accident?

What's the value of a life? I think when economists ask that question, lay people are offended. I'm thinking about it now, and I'm offended too. If someone offered me \$5 million for my cat, let alone another human being, I wouldn't take it. In any case, the Pigouvian tax we would need to correct the externality should be a large one, and it could generate a lot of revenue. If there are 300 million guns in the United States, and we impose a tax of \$3600 per gun on the current stock, we would eliminate the federal government deficit. But \\$3600 is coming nowhere close to the potential damage that a single weapon could cause. A potential solution would be to have a gun-purchaser post collateral - several million dollars in assets - that could be confiscated in the event that the gun resulted in injury or loss of life. This has the added benefit of mitigating the moral hazard problem - the collateral is lost whether the damage is "accidental" or caused by, for example, someone who steals the gun.

Of course, once we start thinking about the size of the tax (or collateral) needed to correct the inefficiency that exists here, we'll probably come to the conclusion that it is more efficient just to ban particular weapons and ammunition at the point of manufacture. I think our legislators should take that as far as it goes.