14 February 2013

The Pain of Paying

Jay Wetmore sent this interesting context on a recent post by Dan Ariely:

"I think there are implications for infrastructure spending. There is a tradeoff between reducing the pain of paying and creating a moral conflict, or developing morally dubious payment schemes. For example, general revenue funds are a common pool resource with all of the tragedy of the commons issues as people try to exploit the "resource" first before it is exhausted. Tolls create a higher pain of paying than gas taxes. Motor vehicle registration fees probably fall in between. Property taxes may not be recognized as funding local roads and so the pain (and anger) may be misdirected. Vehicle mileage taxes create a higher pain level than fuel taxes I think.

Metering, and charging for, water creates a pain of paying that morally dubious politicians and water managers try to remove or hide. Just like minimum payment plans on credit cards lower the pain of paying and result in higher consumption by some people, flat water rates or water payments included in other taxes increase the the consumption of water.

Removing all of the pain of paying creates less efficient economic decisions and transactions. I, for example, do not put my utility bills on automatic payment because I want to be more conscious that electricity and natural gas cost money."

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