The Samaritan's Dilemma

The Samaritan’s Dilemma is an economic concept that has wide-ranging consequences for today’s society. It deals with the economics of philanthropy and donation, and comments on the human nature’s potential to fall into patterns. The Samaritan’s Dilemma is highly related to the moral hazard problem. Adrienne Mitchell wrote a great article that relates moral hazard to senioritis, check it out below.

The Samaritan’s Dilemma is always present when giving need; that is, every time philanthropy or donation occurs to address a need, there is the possibility that it will incur more need. An example of this in a non economic sense is when you give a child candy once, they will ask for more candy. It is more of a psychological concept than an economic one, but because economics is really the study of human behavior there is a great deal of overlap between the two. The Samaritan’s Dilemma as it pertains to economics only occurs when the condition of being in need is in some way controlled by the individual who requires aid. For example, and this is purely theoretical, say there’s a homeless person who can control their homelessness, or at least influence it. They could get a job, but because of the help they get in their present state, they don’t do so, generating more need long-term than if the donor had not given aid in the first place. The Samaritan’s Dilemma is basically weighing the short term benefits of helping against the long-term cost of helping.

The Samaritan’s Dilemma also leads to perverse incentive issues, where instead of inaction, negative action is taken in order to receive aid. This occurs, say, when welfare is income based. If a recipient of welfare understood that the less income they have the more welfare they get, they may be motivated to take the second option, as it means less work for them. The help given has now incentivized against working harder to escape poverty, instead causing a rise in the number of those in need and the degree of their need.

If this is true for almost all philanthropy, how can any donation be effective? The answer is that there is no way to tell for sure, but steps can be taken to ensure that the dilemma has as little effect as possible. One of these steps is private donation. If there is no organizational middleman, that is, if the individual donating has control over how the resources are used, then the Samaritan’s Dilemma can be reduced. Because they are the ones controlling the money, the private donors would be incentivized to make sure that the money is effectively used and not abused for the short-term benefit.

The existence of the Samaritan’s Dilemma does not mean you should stop donating. There are many situations where the condition of need is outside the individual’s control, like the recent wildfires in California. For the people who lost their homes and belongings, it was not by choice. Donating for their benefit will not cause long-term costs, and the Samaritan’s Dilemma does not exist. For donation to other causes, however, you should keep the Samaritan’s Dilemma in mind when you donate. If possible, donate to an organization or individual who you know to be strict about their usage of funds. Philanthropy is an important way to give back, but we should be economically smart about it.

https://fee.org/articles/the-samaritans-dilemma-and-the-welfare-state/

The Tragedy of the Anticommons

I previously blogged about the Tragedy of Commons, and this is a follow up to that post. Briefly put, the tragedy of commons occurs when a common resource is overused. The solution to the tragedy of commons depends on the situation, but the most common is to privatize the property. This usually works, with resources like water being controlled by private companies. However, in certain situations issues with this solution will arise. If there are too many private owners of a resource, each owner can block the other’s use. This phenomenon of common resource underuse was first called the tragedy of the anticommons by Michael Heller, law professor at Columbia University.

The Tragedy of the Anticommons occurs when there are too many private owners of a resource, allowing individual owners to block access to other owners. An example Heller uses is of patents. If 50 people own a patent relating to resources used to create a product, each of them can block access to the resource. As a result, the product isn’t going to be produced AND the resources aren’t being utilized to their maximum efficiency. This underuse of resource is rooted in the social and economic system of the United States. The United States was founded on freedom, and economic freedom is a fiercely protected right. But with such heavy emphasis on private property and individual ownership rights comes the risk of the anticommons. Other examples Heller uses are technology, biomedical research, broadcast spectrum ownership, and even the music industry. All of these industries have a high risk of the anticommons tragedy, because of the wide ownership of key resources needed to produce the goods in those industries.

So, why don’t we learn about the tragedy of anticommons when we learn the tragedy of the commons? The answer is in two parts. One, the tragedy of anticommons is a relatively recent concept, with Heller’s research being published in 2010 compared to our textbook’s publication in 2005. The second part is more alarming. The tragedy of the anticommons is a hidden phenomenon, invisible until identified. It’s not an issue that builds in severity until dealt with, it’s one that is found or not found, and only once it’s found can it be dealt with. This is because opportunity costs are not visible, and the tragedy of the anticommons is essentially what happens when the opportunity costs of not producing. For example, nobody knows about that the anticommons blocked a new drug from being produced for the very reason that it was not produced. As Heller puts it, “Innovators don’t advertise the lifesaving cures they abandon”.

With that in mind, researchers found that the underuse associated with the tragedy of anticommons is more likely to occur than the tragedy of commons, and that fact, coupled with the invisibility of the tragedy of anticommons, makes this phenomenon very harmful to society. If we can’t identify that we’re underusing resources, we can’t fix the inefficiency and society suffers. In Heller’s words, the tragedy of the anticommons “wrecks markets, stops innovation, and costs lives. Our society needs to shift in order to understand the consequences of too much private ownership to address the growing issue of the tragedy of the anticommons.

http://wealthofthecommons.org/essay/tragedy-anticommons

Economics of College Applications (sorry if triggering at this time)

College tuition is not the only high expense related to college. Paying to even just apply to colleges has become crazy expensive. Over the years more and more applicants have been applying to colleges meaning more rejections, but that also means more and more students pay to apply with higher chances of getting rejected. Let's look at Harvard for example. Harvard got about 35,000 applications last year and with an application fee of $75 they made about 2.6 million just from fees. Students end up spending hundreds of dollars on application fees which are basically a fixed cost. The average application fee is $37.88 and let's say you apply to 10 schools; that would cost about $380! The average application fee is the highest it has been in 5 years and I am not surprised. With the increase in the number of students applying to colleges and in the number of colleges, universities have bumped up the prices to apply to gain even more profit. Most families say that the costs to apply are worth it and I agree, you want to keep options open to further your education. But why are there even application fees at all? If you do not end up attending the school why should you have to pay them any money at all? These are questions that do not have reasonable answers but either way, it is important to at least keep in mind how much you end up spending on applications alone.

Opportunity Cost of Tardiness

Everyone has been late to school before, but there are many opportunity costs that people ignore. A clear advantage is that you get more time to rest. Different people value this at different importance levels. Nevertheless, getting more rest is an opportunity cost one has to sacrifice for being on time to school. However, there are several costs that build up as more tardies are accumulated. The first thing is getting mailed warnings to parents, who are likely not going to be happy. The next punishment is a meeting with a school administrator, and then having to attend Saturday School. Finally, after all of that, there is the possibility of being transferred to an alternate school. The opportunity cost of being tardy is not having to worry about all of these.

The Pink Tax

     The pink tax is a phenomenon where products marketed toward girls and women are more expensive than the same products targeted for men and boys.  This applies to all sorts of products: dry cleaning, hygiene products, clothing, and even canes.  It has been found that on average, women pay more than men 42 percent of the time, which adds up to thousands of dollars per year.  Additionally, women already make only about three-quarters of what men make, so they have less income to begin with.  This is a regressive measure because it more heavily burdens the group that has less income.
     The pink tax is seen as a form of price discrimination.  Price discrimination is charging consumers as much as they are willing to pay for an item.  The pink tax is clearly an example of price discrimination because it gives women who are willing the opportunity to pay more for their goods.  In a grocery store, when the same product is packaged in pink and black, those who are willing to pay more for pink have the opportunity to do so.  Though this may seem ridiculous that pink costs more, it makes economic sense for companies if consumers are willing to pay it, which many are.  Oftentimes, women don't know that they are actually being charged more, but nevertheless, their participation in price discrimination allows it to continue. 

Works Cited:
https://www.listenmoneymatters.com/the-pink-tax/

Opportunity Cost of School Sports

 Opportunity Cost is an economic term can be applied to everyday life. Opportunity cost is the loss of potential benefit if one choice is chosen above another. One way this can be used is in school, specifically school sports. Some benefits of doing school sports are that it helps create friendships, you get exercise, experiencing the thrill of competition, and depending on your view, skipping school on some days and not taking PE class for a year. Therefore, choosing not to do school sports has the opportunity cost of everything listed in the previous sentence.
 However, choosing to do school sports also has opportunity costs. Skipping school can be considered as a cost too because of the tests and assignments you have to make up. You could also miss review days or lectures. Furthermore, choosing to do some school sports limits your competition to a few schools. For athletes who are nationally ranked in tennis, for example, electing to NOT participate on the school team could actually be more beneficial because of the opportunity costs. Instead of devoting time to play students from local schools and practicing with students from only the same school they attend, they could travel to other places and participate in tournaments and practice with whoever will optimize their improvement. This could be more valuable than the cost of taking an extra class.

Economics of School Attendance

     When the fires compromised the air quality a couple weeks ago, our school was canceled for a day. I recall someone mentioning the school district facing a loss due to no attendance that day. I previously heard that public schools get paid for the attendance of their students. After some additional research, I discovered that California spends an average of $11,000 per student each year. With a district of 4,300 students shutting down even for a day, the district suddenly loses quite a bit of revenue. 
    Students often complain about not having certain days of school off. However, when we consider the impact of missing days of schools, we can see the financial incentive to have as much student attendance as possible. While we see a 3 day weekend as a chance to relax, the district has to face some heavy losses.
    This can be further related to the emphasis on attendance at our school. If you are constantly absent, you will receive punishments such as Saturday school. These are to incentivize someone to show up to class, as they would not want to face such punishment. In college, for the most part, no one cares whether or not you actually go to class or not. This is because the school already has been paid, and is not going to directly benefit from you being in class.
    It's interesting to see so much economics behind matters like school attendance. After taking this into consideration, I will definitely appreciate our days off more, as the school is sacrificing a massive opportunity cost in order to satisfy us, students.