Gains from Trade in Gun Policy: A Compensation-Based Benchmark

Policies restricting gun sales face substantial political opposition and constitutional constraints. In this paper, we ask how costly it would be to induce potential hand-gun buyers to choose less lethal alternatives. Pairing stated-choice experiments with a behavioral model of firearm choice, we estimate the payments required to induce substitution away from handguns toward long guns or no gun purchase. We then compare these payments with the resulting mortality benefits. We find substantial gains from trade: many prospective handgun buyers require relatively little compensation to switch and targeted compensation can avert homicides at a social cost well below conventional estimates of the value of a statistical life. The extent to which these gains can be realized through compensation, however, depends on the state’s information about which consumers would change their choices and at what price. Without this information, uniform subsidies pay consumers who would choose an alternative anyway and overcompensate those willing to switch for less, sharply increasing government expenditure and reducing the optimal scale of compensation.