Article written by: Dr. Shantanu Bagchi*
The recent update to the Centers For Disease Control’s (CDC) mask guidance has ignited a vigorous debate on whether or not vaccinated people should continue to wear masks in public settings. Conservatives have been quick to label this mask-wearing as “liberal elitism” and accused people of “not following the science”. On the other hand, liberals have labeled this criticism as “selfish individualism” that has no regard for “the greater good”. As it turns out, we can use a set of ideas from Economics to better understand why vaccinated people continuing to wear masks is a natural consequence of a phenomenon called information asymmetry.
Strictly defined, information asymmetry is a situation where the “buyer” and the “seller” of a commodity have different information about the commodity. In a classic study on this topic, George Akerlof (1970) showed that this type of asymmetric information could explain why “lemons”, or defective cars, were flooding the used car markets in the 1960-70s. Basically, in the absence of a vehicle history search service, such as Carfax or Autocheck, the average used car buyer does not know if a particular used car is a “lemon” or a “peach”. The used car seller, on the other hand, fully knows if a used car is a lemon or a peach, but also knows that the buyer is uncertain about this. Given this uncertainty, the buyer would be very unlikely to pay a good price for a used car, and knowing this, the seller would not find it profitable to have good used cars on the lot. As a result, the only used cars on the lot would be “lemons”: the information asymmetry would drive good cars off the used car market. This observation that information asymmetry causes market failures was so novel, it eventually led to Akerlof receiving the Nobel Prize in Economics in 2001.
Similar information asymmetry problems plague a lot of other markets today. Take, for example, the market for individual health insurance. Most Americans are on employer-provided “group” health insurance plans. Group health insurance is considerably cheaper than individual health insurance plans; individual insurance plans are notoriously expensive because insurance companies are uncertain whether an individual enrollee is “high risk” or “low risk”. Because of this uncertainty, they must charge a high price so that they can remain profitable if it turns out that the enrollee is “high risk”. The enrollee, on the other hand, knows their own type: their lifestyle, diet, healthcare practices, and therefore, whether they are low or high risk. A “low risk” person, consequently, may not find it worthwhile purchasing such high-priced insurance. As a result, the only people left to purchase individual health insurance are overwhelmingly “high risk” individuals. Just like the market for “lemons”, information asymmetry drives “low risk” people off the individual health insurance market.
How can we use this framework to better understand why it is reasonable for fully vaccinated individuals to continue wearing a mask in public settings? Consider this: individual vaccination status is private information, so when one encounters a non-mask-wearing person, there is considerable uncertainty as to whether that person is vaccinated or not. Based on the latest CDC guidelines, going mask-free is recommended only around other vaccinated people, but there is no way to know if a stranger is vaccinated or not. Because of this information asymmetry, it is just not worthwhile for many fully vaccinated people, particularly those with underlying health conditions and those who are immunosuppressed, to stop wearing a mask in public. Just like the market for “lemons” and individual health insurance, information asymmetry will produce a less-than-ideal situation here as well: many fully vaccinated Americans will justifiably continue wearing masks in public settings, even though all of us would like to return to a mask-free pre-pandemic normal.
Reference: Akerlof, G. A., 1970. The Market for ‘Lemons’: Quality Uncertainty and the Market Mechanism. The Quarterly Journal of Economics, 84(3), p. 488–500.
*This article represents the research and perspective of Associate Professor Shantanu Bagchi of the Department of Economics.