4 ms·

"Deadweight loss" is a term in economics that refers specifically to loss of producer and consumer surplus due to distortions in the prices or quantities that a

"Deadweight loss" is a term in economics that refers specifically to loss of producer and consumer surplus due to distortions in the prices or quantities that are supplied or demanded. This is different from the colloquial definition of "dead weight" - the latter would imply that licensing produces no benefit, while the former does not. https://en.wikipedia.org/wiki/Deadweight_loss https://en.wikipedia.org/wiki/Deadweight_loss

notahacker 8y ago
If the licensing actually provides benefit to the consumer, the loss in consumer surplus is smaller than that calculated by simply counting the wage differential as the study authors have done. Deadweight loss in economics implies an efficiency loss (hence why Pigouvian taxes, for example, are not considered to produce a deadweight loss even though they actually do reduce producer and consumer surpluses) and thus very much does imply no benefit to licensing when estimated in the manner the study authors have done. The whole field of welfare economics is based around the assumption that a distortion to the price and quantity supplied on an unregulated market might lead to a welfare gain, and thus does not necessarily result in deadweight loss.
- dahfizz 8y ago
  You're understanding of dead weight loss is not how economists use the term. Dead weight loss is simply when a market is not at equilibrium and there is some allocative inefficiency. There is absolutely no moral or subjective judgement there: it is literally just a description of a feature of a supply and demand graph. Dead weight loss is often presented negatively, because we don't want inneficiency, but it's not defined by some moral badness. Your example about sin taxes is wrong. The whole point of a sin tax is to shift the supply curve to the left and let the market come back to equilibrium so as to reduce equilibrium quantity. Sin taxes wouldn't work if they didn't move the market to an equilibrium. You may think that, in this case, the cost of distortions in the market caused by licensing is morally good and a net positive for society. That is an entirely reasonable position to take. But you cant then pretend like those inneficiencies don't exist by playing word games.
  - notahacker 8y ago
    I'm an economics major, fully familiar with the use of the term deadweight loss, and what you're arguing against is welfare economics 101. All forms of tax, subsidy and quota including licensing shift supply and/or demand curves to new equilibria which are different from the unregulated market equilibrium; the purpose of the Pigouvian tax example was that the unregulated market equilibrium is not necessarily the "correct" reference point for calculating deadweight loss in the presence of externalities and information asymmetries. Similarly, comparing wages between licensed and unlicensed professionals across different licensing regimes is useful as a method for estimating deadweight loss from the licensing regime only in the event that there is no benefit from the licensing (i.e. it assumes no externalities related to licensing exist and licensed and unlicensed professionals are undifferentiated in average quality and in an efficient market ought to earn the same amount)

notahacker 8y ago

If the licensing actually provides benefit to the consumer, the loss in consumer surplus is smaller than that calculated by simply counting the wage differential as the study authors have done. Deadweight loss in economics implies an efficiency loss (hence why Pigouvian taxes, for example, are not considered to produce a deadweight loss even though they actually do reduce producer and consumer surpluses) and thus very much does imply no benefit to licensing when estimated in the manner the study authors have done. The whole field of welfare economics is based around the assumption that a distortion to the price and quantity supplied on an unregulated market might lead to a welfare gain, and thus does not necessarily result in deadweight loss.

dahfizz 8y ago
You're understanding of dead weight loss is not how economists use the term. Dead weight loss is simply when a market is not at equilibrium and there is some allocative inefficiency. There is absolutely no moral or subjective judgement there: it is literally just a description of a feature of a supply and demand graph. Dead weight loss is often presented negatively, because we don't want inneficiency, but it's not defined by some moral badness. Your example about sin taxes is wrong. The whole point of a sin tax is to shift the supply curve to the left and let the market come back to equilibrium so as to reduce equilibrium quantity. Sin taxes wouldn't work if they didn't move the market to an equilibrium. You may think that, in this case, the cost of distortions in the market caused by licensing is morally good and a net positive for society. That is an entirely reasonable position to take. But you cant then pretend like those inneficiencies don't exist by playing word games.
- notahacker 8y ago
  I'm an economics major, fully familiar with the use of the term deadweight loss, and what you're arguing against is welfare economics 101. All forms of tax, subsidy and quota including licensing shift supply and/or demand curves to new equilibria which are different from the unregulated market equilibrium; the purpose of the Pigouvian tax example was that the unregulated market equilibrium is not necessarily the "correct" reference point for calculating deadweight loss in the presence of externalities and information asymmetries. Similarly, comparing wages between licensed and unlicensed professionals across different licensing regimes is useful as a method for estimating deadweight loss from the licensing regime only in the event that there is no benefit from the licensing (i.e. it assumes no externalities related to licensing exist and licensed and unlicensed professionals are undifferentiated in average quality and in an efficient market ought to earn the same amount)