Our first variation on the Desert Scenario will test moral intuitions surrounding a familiar tool in the economists' utility belt: distributional efficiency. But first, let’s review our standard scenario to refresh our memory.
“It goes like this. There’s a guy dying of thirst in the desert. We’ll call him Jimbo. Jorgé drives up in his Taco Truck (because street food is awesome), and offers Jimbo a bottle of water for $10,000 (the exact amounts don’t matter, here; it’s just a boat-load of cash). Jimbo protests that the water is too damn high, but Jorgé just shrugs his shoulders and starts to drive off. Jimbo happens to have ten grand in his wallet, so he shouts for Jorgé to stop, forks over the cash, and narrowly escapes death.”
Comments on the inaugural post of this series really gave me pause for thought. It shouldn’t be surprising, but most of our readers come from a background in economics, and were all too happy to extend Jorgé the benefit of a doubt.
Several commenters, notably Rick Weber, here, and Robert Rush, via facebook, noted that Jorgé is not someone they’d want to count as a close friend, but they stopped short of condemning Jorgé’s actions as immoral. I encourage you to read all the comments (there are only a few) and put in your 2 pennies.
I think Swimmy Lionni hits the nail on the head when he notes:
“The reason ‘price gouging’ is justifiable is that it reserves scarce resources for those most willing to pay for them, a set of people closely correlated with those who need them most.”
Who Gets the Goods?
That’s what economists are after when we talk about “distribution efficiency”. In laymen’s terms, it means getting the resources to those who deserve it. Of course, for the economist, desert (pronounced “dessert”; not to be confused with desert) is determined by how much someone is willing to pay (WTP) for a resource. We’re generally happy when everyone whose WTP is above the price goes home with the resource in question. This ensures that “resources flow to their highest valued use” which is just eonomese for “waste not”.
In normal transactions, you walk away feeling like you got a bargain, which is our numero uno indicator that your WTP was above the price. You see, it isn’t just simple mercenary behavior for a seller to try to sell at a high price. In well-fucntioning markets, you still walk away with a deal because there are many other sellers competing for your patronage. Jimbo’s situation is different, since Jorgé’s position as a monopolist water-in-the-desert seller allows him to make the deal worse, but still acceptable, to Jimbo.
In Which Someone Loses a Friend
Let’s put aside the issue of monopoly for another post. Today, let’s change our Desert Scenario to focus on distributional efficiency.
This time, it goes like this. Jimbo brought along his friend, Josephus, for a romp through the sand dunes, but they’ve lost their way. They’re both dying of thirst, and they both need one bottle of water to survive. Jorgé drives up in his Taco Truck at the end of the workday, and unfortunately only has one bottle of water for sale. Jorgé is compassionate, but he can’t decide who to give the water to (sine they both need a full bottle, they can’t split it and survive). Being no economist, Jorgé skipped political philosophy in Taco College, so he has no way of determining who deserves the water more. Inspiration strikes in the nick of time; he’s just watched No Country for Old Men last night on Netflix. Jorgé flips a coin, and asks Jimbo to call it.
Some questions for discussion:
- How do you feel after reading this variation?
- Is this fair?
- How do you feel about removing profits and price from the scenario?
- Is this exploitation? Has “exploitation” been outsourced?
- Is Jorgé asbolved of responsibility for the death of one of the men?