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Meeting “Needs” in the Private Sector: Nonprofit Institutions and Non-Monetary Supply and Demand. John Garen Department of Economics University of Kentucky University of Kentucky Economics Teaching Conference April 2010. Motivation.
Department of Economics
University of Kentucky
University of Kentucky Economics Teaching Conference
Many uses are not: washing the car, running the sprinkler, bathing.
Can “needs” be forgone for something else, e.g., forgo buying a shirt (clothing) to be able to go to more movies? This type of activity occurs.
Much has been written on this. Here are a few basics ideas.
Many, of various political stripes, are attracted to this.
Consider a grocer who wishes to get food to the most needy customers. S/he must know details of many people’s lives. A difficult task, but failure to do so means an incorrect allocation.
2. Income As a Proxy for Need (or Ability)
Is low income a sign of need or a desire for leisure?
Is high income a sign of ability, luck, or hard work?
3. The Complexity of Need
Emotional support, spiritual guidance, advice, commiseration, being held accountable are often needs of those in unfortunate situations. These have little to do with cash and are difficult to assess.
4. Incentives and Dependence
Giving away goods and services induces more use. This: (a) stretches the resources of the organization; and (b) may cause an unwanted dependence on the organization.
Does the homeless man need food or counseling?
Does a friend who lost a spouse need cash or sympathy?
Does the child with poor grades need a tutor or discipline?
Shelter users are expected to be sober, go to religious services.
Kids are expected to behave and eat vegetables.
Friends are expected to return favors.
The assessment of needs works to assist the truly needy. If not done well, it does not serve fairness.
Errors in identifying and assisting the truly needy are likely.
This leads to greater use and possible dependence.
- they must compete for donors and supporters
- donors and supporters expect evidence of success or funding will dry up
- the organization must find ways to solve any motivation problems of
Think of the government program as lowering the nonmonetary price of receipt and supplying all comers at that price.
- welfare cost of taxation/subsidization
- ineffectual govt. provision.
- response to the lower nonmonetary price is small
- examples may be natural disasters and accidents that are difficult to anticipate and avoid
desirability of public versus private provision.
Clark, J.R. and Lee, Dwight, “Government Transfers and Inequality: An Anatomy of Political Failure,” Public Finance and Management, 8(2), 2008, pp. 265-301.
Clark, J.R. and Lee, Dwight, “Substituting Markets for Morality,” Cato Journal, forthcoming.
Garen, John, “On Fairness and Needs in a Free Enterprise Economy,” Journal of Applied Economics and Policy, 29(1), Spring 2010, pp. 61-78.
Heyne, Paul, “The Concept of Economic Justice in Religious Discussion,” in Geoffrey Brennan and A.M.C. Waterman (eds.), Are Economists Basically Immoral? And Other Essays on Economics, Ethics, and Religion by Paul Heyne, Ch. 9, Indianapolis, Indiana: Liberty Fund, 2008.
Schansberg, D. Eric, “Common Ground Between the Philosophies of Christianity and Libertarianism,” Journal of Markets and Morality, 5(2), Fall 2002, pp. 439-457.
Also, Adam Smith and Ayn Rand views on morality, self interest, and markets.