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December 02, 2009

Why limit choice?

We pride ourselves in our country and our economy on letting people make their own choices about what to study, where to work and what to buy. But there are some legal limitations on this economic freedom. What's the rationale behind these limits?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"It's really important to have rationales that people understand and embrace, because our country really does pride itself on choice, letting people do their own thing. But there are, I think, three major areas where we do put restrictions. One is we will restrict choices of individuals in our society who aren't capable, we think, of making those choices. I think the best examples are children. We obviously put limits on what children can buy. Secondly, we limit choice when a choice may harm others. So, for example, we don't let people drink excessively and then drive. We have laws against that, because by doing so, that person not only puts themselves at risk, they put others at risk, other innocent people. So there are limits on how much you can drink and then drive. And then thirdly, and perhaps the most interesting one, is we put restrictions on choice when there's imbalanced information, when one side of the buyer-seller equation has more information than the other. And particularly this is with respect to the seller, when the seller knows a lot more about the product, and the buyer has no way of being able to gain that same knowledge, we put restrictions. A real good example of this is years ago something called the APR, annualized percentage rate, was imposed on sellers who were charging interest rates. And what it did is it made sellers all calculate the interest rate in the same way. And that keeps them from getting an edge, for example, over the buyer. So these are very, very important areas of discussion, and people need to realize that, yes, we do have some limits that do make sense."

Posted by Dave at December 2, 2009 08:00 AM