The first edition of Ohio University economist Harold Winter’s Trade-Offs appeared in 2005, and it became a popular introduction to economic reasoning. Now he is out with a third, “significantly updated” edition, and I’m raring to introduce readers to his latest insights. The new volume covers issues that appeared in earlier editions, such as the value of a human life, markets for human organs, and copyright law. Issues new to the third edition include eminent domain, criminal law, and healthcare economics. This introduction will startle many newcomers and perhaps even some seasoned economists.

Winter’s methodology is: “identify trade-offs, measure trade-offs, and recommend policy.” He defines trade-offs as benefits and costs. He cites empirical studies throughout the book that often contradict each other. For example, one economist concludes that the death penalty clearly reduces homicide, while another pair conclude that its effect on the murder rate is ambiguous. Winter states that “empirical studies simply lack the ability to definitively resolve social issues.” He anticipates the frustration readers will have with contradictory empirical results, expecting them to wonder, “Can there be no consensus among economists when it comes to important social issues?”

The author typically adopts the goal of maximizing “social welfare,” defined as the difference between benefits and costs. Some non-economists overlook benefits or costs. Winter quotes epidemiologists who, in a letter in a 1995 issue of Regulation (“Commercialized Nicotine Addiction,” Vol. 18, No. 4), seemingly deny there exist any benefits of smoking. Other non-economists object to monetizing benefits and costs. Economists who view the concept of social welfare as uncontroversial may be surprised to learn that Gary Becker and George Stigler argued over whether to include the benefits and costs to criminals in a social welfare analysis of crime. No one pondering social issues is required to adopt the goal of maximizing social welfare (efficiency); they may pursue the goal of equity (fairness). Winter clarifies, “How you want to define social welfare, who to include, whether to be concerned with efficiency, equity, or something else, boils down to a matter of opinion.”

Value of life / The author uses news stories to teach economics. When, in 2008, the US Environmental Protection Agency reduced its value of a human life from $8 million to $7 million, there was disapproval. Winter appreciates this reaction: “You put one human life on the scale, and you put the rest of the world on the scale, the scale is balanced equally.”

One way of measuring the value of life requires the “risk differential” between two occupations and the “wage premium” one would expect to take the riskier occupation. For illustration, Winter assumes that a riskier occupation entails one more fatality for every 10,000 workers than a less risky occupation, and that a worker expects $500 per year more in wages to perform the riskier occupation. The “value of a statistical life” is then $5 million. “Think about it this way,” he writes:

If 10,000 workers each need $500 to incur the increased risk, we have a total of $5 million the workers are willing to be paid to face, on average, one death from their group. It is the “on average” that makes the estimate a value of a statistical life.

Estimates of the value of a life range from $4 million to $10 million. Whereas the uninitiated think a regulation is wise if it saves one life regardless of cost, government agencies evaluate regulations by comparing the value of a life to the cost per life saved. For instance, “A 1988 traffic alert and collision avoidance regulation from the Federal Aviation Administration cost $2,100,000 per life saved.” That is a good regulation: the benefits ($4–$10 million) are greater than the cost. The following regulation was ill-advised because it produced fewer benefits than costs: “A 1986 arsenic/​glass paint regulation from the EPA cost $19,000,000 per life saved.” There are ways of spending $19 million that will save more than one life.

Gains from trade / Winter is passionate about gains from trade. Take the 1990 California Supreme Court case Moore v. Regents of the University of California. The plaintiff, John Moore, was a cancer patient. His doctor, a cancer researcher at the University of California, Los Angeles, advised a splenectomy. Unbeknownst to Moore, the doctor then used his spleen cells to create a cell line, used for research, that was worth billions of dollars.

When Moore realized how valuable his cells were, he sued for a share of the money. “Although there are legal, ethical, and moral issues raised by this case,” Winter explains, “the main economic issue involves seeing that the cells end up in their highest valued use.” He then follows the reasoning of Ronald Coase: Assuming a doctor has the highest value for the cells because he knows how to create a cell line, he will somehow get possession of the cells and create the line so long as property rights to the cells are clearly defined. If, as a lower court decided in this case, the patient has the property rights to the cells, the doctor will buy the cells and create the cell line. If, as a higher court decided, the doctor has the property rights, the doctor will still create the cell line. Either way property rights are assigned, society gets the valuable cell line. The author adds, “The real issue seems to be one of equity”—that is, should the original cell source get a share of the profits? Without property rights to his cells, Moore did not get rich.

According to the author, about 90,000 patients are waiting for kidney transplants. “As an economist,” he proclaims, “I place a lot of stock in the concept of the gains from trade, and I tend to favor market solutions.” If there were a market for kidneys, buyers would pay higher money prices rather than wait in line. Sellers would be motivated by the higher money prices to donate more kidneys. Both patients and donors would gain. But a market for kidneys does not exist.

One objection to such a market is that it would benefit the rich and harm the poor. That objection is weak. Gary Becker estimated that the “market clearing price for a kidney” is around $15,000. Given that the cost of transplant surgery is substantially higher, there would be few patients with the ability to pay for the surgery but not the kidney. Furthermore, for every patient who exits the queue for a “free” kidney in order to purchase one on the market, a poor patient moves closer to the front of the line. To rebut resistance to the market based on the expectation that sellers will be predominantly poor, Winter asks, “Wouldn’t the poor reap gains from trade when selling a kidney?” The greatest barrier to a market for kidneys or other human organs is “repugnance,” which the author characterizes as “moral outrage.” He devotes a chapter to the tradeoffs involved in overcoming repugnance.

Government intervention / When the government exercises eminent domain, it takes private property “for public use” in return for “just compensation.” Eminent domain is not a first resort. If the government desires private property for a public purpose, it goes to market. If the most it is willing to pay is greater than the least amount the private property owner is willing to receive, exchange occurs. In contrast, a failure of voluntary negotiation paves the way for eminent domain. First, transactions costs “may be prohibitive.” Second, a negotiation will not lead to exchange if a private property owner is unwilling to accept the most the government is willing to pay.

Winter writes:

Using economic reasoning to evaluate eminent domain boils down to a simple trade-off. On the one hand, eminent domain can help move a resource to a higher valued use when, for whatever reason, a market transaction cannot do so. On the other hand, eminent domain can move a resource to a lower valued use when a market transaction would not do so.

Even though, by definition, buyer and seller in a private transaction agree that they are moving resources from a less-valued to a more-valued use, they may be wrong and reduce wealth as a result. Eminent domain is troublesome because when property owners are forced to give up what they own in return for compensation they view as unjust, there is already disagreement over whether the forced transfer will be efficient.

Eminent domain is abusive when government wields it on behalf of a private party. Take this case:

In 1981, the city of Detroit invoked eminent domain to condemn a large area in Poletown (a neighborhood of Detroit) to make way for GM’s new plant. The condemnation required the relocation of 4,200 people, 1,300 homes, 140 businesses, 6 churches, and 1 hospital. It cost the city $200 million to get all this done, but GM was generous to help with the expenses. GM paid the city $8 million.

That is as egregious as the more recent case of the New London, CT, taking homeowners’ properties and transferring them to a private party. Winter stokes the issue with this question: “If you accept that eminent domain does, at least in certain situations, promote efficient transfers, why not allow it to be used for purely private transactions in similar situations?” One reason to oppose private corporations using eminent domain is that “endowing them with additional power is not thought of as prudent.” Of course, it is not; property owners would likely resist with violence.

Winter retreats from his controversial idea of permitting corporations to implement eminent domain and states, “Perhaps it makes sense to allow the government to act as a middleman to facilitate the transfer of resources from one private party to another.” He recognizes that rent-seeking and cronyism will occur. The Poletown and New London cases are quintessential illustrations of what goes wrong. (See “Before Kelo,” Winter 2005.) The author is so eager to see resources move from less valuable uses to more valuable uses that he flirts with pragmatic ways of doing so. In the end, he points out that “any time a resource moves through a nonmarket mechanism, the potential exists for that resource to move to a lower valued use.” That serves as a warning against eminent domain of any kind.

Healthcare / One chapter begins with quotes on the wisdom of preventive healthcare. Winter claims, “I know something the authors of the above quotes do not know—prevention may not be preferable to treatment.”

He uses numbers to illustrate. Suppose there is a disease that afflicts 8 percent of the population and requires $10,000 of medical care to cure. If you pay $1,000 for a vaccine, you will not get the disease. “You may decide it is worth spending $1,000 on prevention to avoid the 8% chance of a $10,000 treatment cost,” the author reasons, “but you may decide it is not worth it.” Assume you and 4,999 others decide it is worth it. The total cost will be $5 million. The expected total benefits are the medical expenses that 400 people dodge: $4 million. Under those assumptions, “prevention imposes greater costs on the health-care system than treatment would have.” Under different assumptions, however, prevention would make sense.

There are additional reasons why the net benefits of prevention might be negative. Among them, screening involves false positives and false negatives. Winter notes a study that found a false positive rate for breast cancer of nearly 96 percent. Test results that suggest cancer call for a second test or alternative test; the additional costs hurt the case for prevention. The net benefits of prevention might be positive, at least because prevention delivers “peace of mind.” In sum, there is an optimal amount of prevention depending on the prices of prevention and cure.

Newcomers will be startled to learn that there are “benefits of smoking.” Even seasoned economists might be startled to learn that “overestimating the risk of smoking can lead to too little smoking.”

Faced with a trade-off between reviewing more issues in less depth and fewer issues in more depth, this reviewer opted for the latter. Note, however, that Winter’s analysis goes deeper than this review. Among the topics in the book that I haven’t covered are asset forfeiture, preexisting health conditions, regulation of vaping, and offsetting behavior. Buyers of the book will receive an additional bonus: the author’s sense of humor.