The Nanny Corporation and the Market for Paternalism

Abstract:     
Individuals in common pools-employees in firms, shareholders in firms, individuals in insurance plans, and citizens in a jurisdiction - want the managers of those common pools to act paternalistically toward other individuals, because this lowers the costs of being in the pool. The nanny state, which bans smoking in public places and imposes innumerable sin taxes, and the nanny corporation, which is starting to force employees to be more healthy, are simply responding to this demand. These two can thought of as competing in the "market for paternalism" to deliver paternalism to individuals that demand it.

Where nannyism is inevitable, as it is in a world in which others pay, the question then becomes which of the two sources of nanny rules - the state or the firm - is the most efficient supplier of paternalism. This essay describes numerous reasons why corporate nannies are superior to their state analogs in some cases. For instance, corporate policies are subjected to more instantaneous feedback from labor markets, which reduces overreaching but also helps solve information problems in ways likely to reduce the sum of decision and error costs.

There is, however, no theory under which the state or firm will always be superior at imposing nanny limitations on behavior. Because of this, we might expect firms to supply nanny rules when it is efficient for them to do so, say because of better monitoring, lower agency costs, or the like, and not to do so when government rules could be supplied at lower cost for a given efficacy level. The problem, however, is that there are government rules, regulations, statutes, constitutional provisions, and case law that may distort the market from efficiency. This essay makes the case for corporate nannyism and shows how government regulation may be biased without justification in favor of the nanny state.

Working Paper Series