Thursday, 16 May 2013

Pregnancy, smoking, and principal agent problems

Earlier this week it the headlines that NICE (the National Institute for Health and Care Excellence) were recommending midwives use a carbon monoxide test to verify whether expectant mothers were smoking. Suitable fury from smokers followed. The proposal, however, is based on pretty sound economics.
    The relationship between a child and parent is a principal-agent relationship. The basic idea of any such relationship is that a principal 'employs' an agent to do a 'job' for her. Its fine to interpret 'employs' and 'job' very loosely. In this case we can think of the unborn child as employing the mother to protect her growth and development. Clearly it is in the best interests of the child that the mother quit smoking, eat healthily etc. The mother, however, has different incentives. And, there were lots of mothers I heard on the radio this week determined to carry on smoking regardless. This is an example of a moral hazard problem: The agent, in this case the expectant mother, takes on more risk than the principal, the unborn child, would like her too.
    Many people, at least many of the students I have taught, like to argue that the parent child relationship shouldn't be see as an example of a principal agent problem. Surely the mother acts in the best interests of her child? While, it would be nice to think so, the reality is often very different - count how many pregnant women smoke. So, moral hazard exists. And that's not the only problem.
     People can choose when and whether to have children. If quitting smoking is difficult, then a responsible smoker would quit before getting pregnant. Some people do quit smoking before getting pregnant but others do not. Simple logic says that the people who get pregnant irrespective are going to have more children than those who wait until 'everything is right'. The adage that you cannot choose your parents, therefore, understates the true problem. You are more likely to be born to an irresponsible parent than a responsible parent! This is an example of an adverse selection problem: Less desirable agents are more likely to be employed. Or in this case, unborn children and relatively likely to end up with irresponsible parents.
     We cannot, therefore, trust pregnant mothers (and fathers) to stop smoking. And a further thing to keep in mind is that the pregnant mother is employed by the taxpayer as well as the child. This is because the National Health Service will pick up the bill if anything goes wrong. That lessens the incentive for mothers to act responsibly. Indeed, one could argue that the benefits system positively encourages irresponsible behavior. So, I have no hesitation in saying that the carbon monoxide test is a good idea. The test, however, does not solve the problem of what to do with expectant mothers that want to continue smoking. For that the Health Service needs a credible threat to encourage non-smoking - and its hard to think how to do that.

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