On Tuesday, Gov. Greg Abbott announced a near-complete reopening of the Texas economy. Looking at the COVID-19 data and analyzing the risks and benefits, I disagree with this position.
Just as we are a month or two away from hopeful vaccination levels, I believe it’s a bad idea to allow COVID-19 to spread and risk the virus’ evolution into new variants. It’s an important argument, but an additional problem arises from the governor’s orders that I don’t believe is considered enough.
I believe it is clear that the government has, in effect, created a market failure. By allowing businesses to operate without restriction, the governor’s new orders run the possibility of the market not appropriately pricing in risk (of infection) into the cost of in-person services (such as dining.) If this pans out to be true, the government will, in essence, not only allow reckless business practices, but also incentivize them.
Consider two companies that directly compete with each other, Restaurant A and Restaurant B.
Once the latest orders by Gov. Abbott go into effect, the restaurants take two different approaches. Restaurant A voluntarily continues to limit its capacity to 75% and requires its customers to wear masks. On the other hand, Restaurant B opens entirely at 100% capacity and no longer mandates masks.
Restaurant A decided not to reopen their establishment completely to reduce the risk of spreading COVID-19. They have taken the interest of society into consideration and have, in principle, priced in the cost (or risk) associated with dining in — not by directly increasing prices but by making their services intentionally scarce via limited capacity.
On the other hand, Restaurant B decided on a complete reopening. They have not raised their prices or limited capacity but rather operate on a framework of maximizing capacity in order to raise as much revenue as possible.
The behavior adopted by Restaurant B (100% capacity) is riskier, i.e., more costly — but not to the company. Consider the possibility of a super-spreader event at Restaurant B. It is not the company that is liable for the cost of COVID-19 infections, it’s the consumer and society.
Under normal circumstances, if a business engages in risky behavior without paying the cost (what is known as an externality), the government could artificially inflate this behavior’s price through taxes and fees. The issue here, of course, is that Gov. Abbott’s recent actions are the very thing that allowed for this externality.
In my estimation, society would be better off if a framework of limited capacity was preferred, but the issue is that companies are incentivized to reopen completely. Especially with decreases in revenue from lockdown, some companies are seriously going to feel the pressure to maximize capacity. After all, if Restaurants A and B are competing, the one that intentionally limits its capacity is disadvantaging itself financially.
The solution I offer is the following: companies should publicly commit to limiting capacity and requiring mask-wearing, while consumers should commit to shopping at these establishments over those who open with no restrictions. This strategy prioritizes public health while also protecting businesses that voluntarily choose to limit their capacity despite economic disadvantages.
To be sure, even with the governor’s new orders there are incentives for businesses to behave responsibly. While companies may now increase their supply (via increasing capacity), market forces will still determine the demand for the restaurant’s goods.
Here, companies are incentivized to adopt the habits of mask-wearing and limited capacity. Even if a restaurant is allowed to operate at 100% capacity, a good portion of consumers will refuse to eat at a restaurant if masks are not worn by other patrons or staff. I believe that this will deter some consumers, but I am skeptical that it will in any real way reduce the spread that is liable to occur from a complete reopening.
Therefore, what I suggest is putting the power in the hands of the consumer. It is a conscious strategy of managing one’s risk when dining or shopping and managing community risk. This requires a commitment by businesses to follow advised COVID-19 regulations (to protect consumers) and a commitment by the public to spend their money at these regulated companies (to protect businesses.)
As a collective of citizens, we agree that government can do things more efficiently and effectively than by ourselves. Indeed, in this case, government restrictions would have been efficacious. But, we must not forget that any elected official, the governor included, derives their governing power directly from the will of the people.
While the government is responsible for protecting the public, we, the people, are as well. The choice is ours.
Cover photo: Texas is about to lift COVID-19 restrictions that limited capacity in many businesses and required masks in public settings. (Robert Moore/El Paso Matters)
