Why did this year’s Nobel prize-winning economist write about dwarf-tossing and horse meat?

Why did this year’s Nobel prize-winning economist write about dwarf-tossing and horse meat?

Alex Tabarrok has a good layman’s explanation of the work of Alvin Roth and Lloyd Shapley, this year’s winners of the Nobel Prize in Economics. (Yes, yes, the Sveriges Riksbank etc. etc.) Their work on matching algorithms has been used to more efficiently and satisfactorily match students with schools, new doctors with hospitals, and most famously, patients with donor organs.

One of Roth’s more interesting notions, and one that may be of particular interest to FP readers, is his work on repugnance as a constraint on markets — the costs imposed by the fact that certain cultures find the buying and selling of certain goods and services to be too icky.

Roth was particularly interested in cultural taboos against the buying and selling of organs. We may find the idea of a teenager selling his kidney for an iPad 2 to be beyond acceptable market behavior, but many economists argue that this squeamishness should not stand in the way of either a destitute person willing to sell a kidney for money, or an ill person willing to pay to stay alive. 

In his 2007 paper, Repugnance as a Constraint on Markets, Roth considers several examples of repugnancy costs.  For instance, it is illegal to eat horse meat in California. But it is not illegal to kill horses — just not for the purpose of eating them — and many people in the state come from societies where eating horse is socially acceptable.  

He also discusses dwarf-tossing, an activity banned in many places and widely viewed as morally repugnant, though the physically similar sport of "wife-carrying," is widely accepted. Roth notes that a dwarf-tossing ban in France was overturned after one dwarf sued on the grounds that it violated his right to employment. 

In less wacky sections, Roth discusses why carbon trading schemes are now considered acceptable, but it is considered unethical to pay developing countries to take in waste from the rich world, any why paying mercenaries is considered less ethical than expecting young citizens to die for their country.There’s also the charging of interest, a practice that only being acceptable in Europe around the 14th and 15th century and is still considered unethical in Islamic societies today, resulting in a cottage industry of sharia-compliant financial services.

Roth concludes by arguing that "the real repugnance that some people feel toward some transactions means that economists interested in proposing and designing markets must take this repugnance into account."

If one hopes to design more efficent and ethical systems of exchange, cultural notions of repugnance can’t simply be dismissed as irrational. This would seem to be an argument with implications beyond economics.