Wednesday, April 18, 2012

Double or Nothing

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:

  1. How do you feel after reading this variation?
  2. Is this fair?
  3. How do you feel about removing profits and price from the scenario?
  4. Is this exploitation? Has “exploitation” been outsourced?
  5. Is Jorgé asbolved of responsibility for the death of one of the men?

Previous Posts in This Series

  1. Don’t Go Chasing Windfall Profits


  1. I would also ask if it matters who flips the coin. In game theory, the coin acts as "nature", a way to randomly allocate players to a branch of the game tree. Game theorists view nature as purely neutral, but I have a suspicion that ordinary people might harbor reservations. You wrote that Jorgé flipped the coin and he also called it, but I think what you may have meant is that one party flipped, and another called. Do intuitions change if we deviate from this script? Do we feel differently if Jimbo and Josephus make the coin toss than if Jorgé and Jimbo do it? What if Jorgé flips and calls. Would that be unfair?

    1. Thanks, Sam. That was a typo. Jimbo should have called the coin toss.

  2. Morally speaking this is a catastrophe. I don't think I care how the sole water bottle was allocated, be it coin toss or auction. Someone died for lack of a potentially available resource. The two survivors should go home and cry themselves to sleep, whoever they wind up being.

    That said. A situation where it turns out to be Jorge who dies in the desert (Jimbo took the water, Josephus took Jorge's single occupant truck) would be morally worse to all other alternatives. Well, all but one: no one gets the water and two die in the desert.

    1. That's a clever turn of events, stealing the Taco Truck. Reprehensible, but interesting.

  3. 1. If I can't challenge the premises, then the situation is tragic. (What, can't hit fit the two travelers into the taco truck and rush them to a convenience store to buy a second bottle of life-saving water?)
    2. Neither fair nor unfair.
    3, 4. Removing price/profit does eliminate sense of exploitation.
    5. Jorge can't be morally responsible for failing to do something which is beyond his capability to do. By assumption he can save one and not two, so he cannot be responsible for the death of one. (On the other hand, if he withheld the water and both died, he'd be morally blameworthy for one of the deaths.)

    1. Interesting! Though, I think one could say in the presence of the coin-flipping alternative, letting both die makes Jorgé responsible for *both* deaths.

  4. Jose has the truck and the water. The money could be his in exchange for the one or the other. If he sells the last bottle and drives off he is alive and rich, and the other two are both poor, and one of them dead.
    Does his making a profit appear more reprehensible given that someone was going to die?
    From Jose's perspective, he might not stop to wonder which of the two would live. But the fact that he earns a profit provides the incentive to head back into the desert to sell again! Without that motive every stranded desert-ian would face certain death.
    Between Jimbo and Josephus a decision must be made who is to live and who is to die (we could make it more interesting by giving Jimbo $9,999 and Josephus $1 while holding Jose's minimum price at $10,000). Either is bad. Neither is better.

    Sacrificial altruism places oneself in the position of each of the agents in turn, and says "I am willing to die for the sake of the others." If I am Jose, I give Jimbo the truck and Josephus the bottle, or vis versa. If I am either Josephus or Jimbo I give the other the bottle, or the means to acquire the bottle, and let Jose go.
    That's philosophically uninteresting, of course, but it does not quite end the money discussion.
    Because someone is going to get home rich.
    If I were to try to arbitrate justice, and I were Jose, I might give Jimbo the truck and Josephus the bottle and the money. If I were Jimbo or Josephus I might try to steal the truck, give it to the other, then leave Jose with the bottle and the money. Or I could just steal the water and send Jose on his way. (In each case, I lay down and die in the desert, the only question is whether I try to use force to bring about what I might consider a more just situation among the other agents.)
    The question of whether the sacrificial altruist ought to employ force to bring about better justice among the surviving parties is interesting.
    But still, for the repeat game scenario, it is best for Jose to get the money for the water with no other redistribution so that the incentive to bring water to the desert remains. Knowing this the sacrificial altruist has his solution: If Jimbo or Josephus, he buys the water for his companion, does not coerce Jose, and lies down to die. If Jose there remains a problem, because how can he be sure that Jimbo or Josephus will return to the desert to sell water if given the truck and the money? Better to give one the truck and one the money and water, but maybe better to keep the truck and the money so Jose can be sure someone will return to the desert to help others!

    1. What about the coin toss, and the discussion questions?

  5. Being no economist, Jorgé skipped political philosophy in Taco College, so he has no way of determining who deserves the water more.

    As outside observers we would want more bottles available to lost travelers in the wilderness. If the rule was that you had to give water away and then only to the lucky coin-toss winner, there would be no incentive for Jorge to carry more water than he needed.

    However, if he knew that he could make 10 large with every bottle, I suspect he would buy a case and travel all hours of the night in search of customers.

    As Jorge returns home with his new found riches and buys rounds for his friends at the bar, they begin to dream of their own water bottle empire and begin to buy taco trucks and cases of water. In time, water in the desert reaches an equilibrium.

    By allowing price to determine who gets the water, more water will be made available. By allowing luck and pure random bullshit to determine who gets water, LESS water will be made available. [the idea being that Jorge realizes that midday drives in the desert result in him losing water].


Do you have suggestions on where we could find more examples of this phenomenon?