By David Henderson
In a problem set for an Energy Economics course I’m teaching this quarter, I asked the following question:
The U.S. government requires that a certain amount of ethanol be used in gasoline in the United States. There is fairly strong evidence that this does not do anything to delay global warming or to save energy on net. There is strong evidence this government-created demand for ethanol has substantially raised the price of corn.
Using the political incentives we discussed in class, explain why, despite the argments of many economists, this requirement has been politically difficult to repeal.
What I was looking for, as I’m sure many of readers of this blog already know, is a discussion of concentrated gainers from the ethanol requirement, especially producers of corn, and dispersed losers, especially buyers of corn. I wanted them to point out that these corn consumers are “rationally ignorant” (one of the best terms I think economists have ever come up with, second only to “deadweight loss”) and therefore do not get involved in the debate or lobbying.
A student surprised me, though, with a further insight. He made all the points I wanted to see about concentrated/dispersed and then made the point about rational ignorance of consumers as follows:
Their knowledge is low, and the cost of becoming educated and exerting pressure is high. They are rationally ignorant (or, alternatively, rationally inactive.)