OSD 180: Adverse selection
You might have seen this video of a gun buyback in Houston on Saturday:
What’s in the box? A bunch of homemade pistols, helpfully printed in bright colors, probably still warm from the printer:
Based on the buyback’s info page, those derringers in the box earned their maker either $50 or $150 each, depending on whether they were finished out enough to function.
The city naturally editorialized a bit in calling the event a success. But it was undeniably well-attended:
Lines of cars could be seen wrapped around the block at Wheeler Avenue Baptist Church in southeast Houston where the event was held. Officials collected 845 guns and say they gave out nearly $100,000 in gift cards throughout the event.
Residents explained why they participated:
“I got a shotgun and a .32,” said Marvin Washington.
“It’s an old .22, but it’s like 50 years old, but it's been laying around,” said Brian Carr.
Community members surrendering their firearms had different back stories but shared one common goal.
“Man, it is so crazy out here. The more guns we get off the streets the better it is, trying to get something positive done,” said Washington.
“It’s too much crime going right now. We just thought we could do whatever we can to help,” said Carr.
And of course, other residents came down to Wheeler Ave. help their fellow Houstonians find the market-clearing price:
The overwhelming turnout also drew out people trying to buy guns from those in the line, something Mayor Turner directly addressed.
“There were some people going up and down the lines saying we will pay you more than the city and the county are willing to pay you, with no background checks, and mind you, it’s not necessarily illegal and that’s a loophole in the process,” he said.
People with rusty guns in the attic get to turn them into cash. People with 3D printers get paid to troll the cops. The mayor gets a soundbite to fundraise on. Good clean fun all around.
But none of those (fun! congruent with the incentives of all parties!) goals are the stated one. The stated goal is to save lives. Did that happen?
Well, there’s a phenomenon in economics called adverse selection. That describes a situation where there’s an information asymmetry between buyer and seller, and the better-informed party uses their info advantage to choose trades that the counterparty wouldn’t otherwise agree to.
The classic example is life insurance for smokers. Smoking increases the risk of early death. This increases the expected value of life insurance for smokers. It also increases the insurance premium. Adverse selection is the (somewhat theoretical, it turns out) phenomenon that at the margin, the people buying life insurance will tend to be exactly the people that an insurance company doesn’t want: smokers who’ve concealed the fact that they smoke.
We don’t have to go too far to see how this connects to guns, because it turns out the same issue applies to gun liability insurance. From an exchange we had on Twitter with the mayor of San Jose when he announced a proposal around that idea:
The adverse selection is that the only people for whom it would be rational to buy gun insurance are the people you wouldn’t want to sell it to: criminals and the negligent.
Gun buybacks have a similar structural issue: the only people who participate are those who were never going to hurt anyone anyway. It’s fine if they want to turn their guns into cash (although they’d be better off selling for a market price), but it’s a fallacy to assume that reduces crime.
That fallacy comes from something we’ve talked about before (here, here, here, and here): the idea that guns themselves are inherently malign. That’s the mental framework where you get ideas like “for each 10% jump in home ownership of guns, the risk of someone in the household being killed rises by 13%”. It’s also where you get the idea that gun buybacks reduce crime. Fewer guns must mean less crime, right?
The faulty assumption is that this treats gun owners as fungible. It’s not binary, of course. Even the most ardent buyback organizer would agree that probability of criminal misuse isn’t evenly distributed across all gun owners. But they’d argue that at the margin, one less gun is a little less risk.
But that makes two mistakes.
First, guns (really gun owners) are far less fungible than the “if it just saves one life” logic would suggest. There are 423 million guns in the US. Each year, about 0.01% are used in a murder (and that’s assuming no guns are used in more than one murder). That’s one in 10,000. So on average you’d need 10,000 guns to be turned in at a buyback to save one life. And that’s making the (very) charitable assumption of zero adverse selection.
Second, one gun being turned in at a gun buyback doesn’t necessarily reduce the number of guns in circulation by one. Anything turned in is easily replaced.
In practice, buybacks are an easy way for all involved to make some cash and/or score some points. Overblown by all sides. There’s really not more to it than that.
This week’s links
The gun industry is smaller than people think
News coverage is not necessarily correlated with incidence
AWB passes House
Its prospects in the Senate look dim, but stay frosty.
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This also creates a perverse incentive ala the "cobra problem." They're literally encouraging gun manufacturing. However, the only way to combat that would be to exempt "ghost guns" (a problematic strategy, considering their stated goals and ideology) or reduce the "rewards" to make 3D printed guns cost more than the reward, which is also a problem in that it reduces the incentive to turn in real guns.