Two Types of Intervention Motivation

Alex Tabarrok links to this post and comments that "given two equally good roads most people will always choose the more crowded!" It's obvious once you think about it, and once it's obvious, you can come up with more examples (or you can read the comments sections at the linked posts).

You might be tempted to despair, until you realize that it's often good to be "on the crowded road". Imagine a world in which there are two equally harmful diseases, but reseources for developing only one cure. It would be great to be in the group with the more common disease - if there is also a rule that the cure will be developed for the more common disease. Markets approximate this rule pretty well, because it is more profitable to serve many rather than few customers. There is an important caveat to this statement, however: Strictly speaking, it only holds if ability to pay is equally distributed between the two groups.

Enter subsidies and regulations. A pretty good reason for a government to interfere is if the larger group's total ability to pay is lower than the smaller group's. If everyone's well-being is valued equally, you have a case for government to mandate treatment A be developed rather than treatment B.

Note, however, that much government intervention is based on the opposite type of calculation. This second type of intervention is based on the idea that those with unusual demands should be served (nearly) as well as those with standard demands. This seems like a poor motivation for intervention, because it is exactly the right outcome that those with less common demands are served less well - again, assuming everyone's well-being is valued equally. Presumably, such interventions are based on a fairness notion saying that everyone should get (approximately) the same. But this necessarily leads to resource allocation which is inefficient in terms of maximizing total experienced utility. No?