David R. Henderson  

Charitable Arbitrage

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First, Merry Christmas, Happy Hanukkah, and Happy Holidays to all.

Now to my post.

Robert Murphy recently stated that he carries Clif Bars with him so that when he sees someone begging for money, he has something nourishing to give the person. I stated on Facebook that I have adopted that policy and it works well. I carry a bunch in my car. Every time I've asked the person if he/she wants a Clif Bar, the answer has been "Yes." Moreover, the person has seemed to genuinely appreciate it.

My friend Steve Chapman of the Chicago Tribune, who read about my experience on Facebook, emailed me to ask why I, an economist who understands that from the recipient's viewpoint, money is always better, give Clif Bars instead of cash.

I have two answers:

1. In my private giving, I am somewhat of a paternalist. I would rather the recipient have healthy food rather than, possibly, spending money on alcohol.

2. Even if I weren't a paternalist, there's a strong arbitrage case for my policy. I buy the Clif Bars in a big box from Costco. Although I forgot to save the receipt, I think the per bar price is only about 70 cents. But people who beg for money are typically severely cash-constrained. They don't normally have enough money to go to Costco (and, remember, that they would have to buy a membership to shop at Costco.) So, if they wanted a Clif Bar, they would likely go to a retail outlet and pay, say, $1.50 each. That means that if they value Clif Bars at below $1.50, they won't buy them. So all I need for this to an efficient transfer from the viewpoint of the recipient is that he/she value it at above 70 cents. Thus the title of this post. I buy something at 70 cents each and give it to someone who has a substantial probability of valuing it at above 70 cents.


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COMMENTS (15 to date)
TheKOM writes:

The new nut butter filled Clif bars are great, FWIW.

Mark Barbieri writes:

Sounds like a good plan. I'll have to consider it, although I'm not sure I want the temptation having a Clif Bar with me will bring.

I'm pretty libertarian leaning, but I still struggle with how we handle the mentally ill. It bothers me to see them living lives of misery on the streets but I'm not sure how or where you draw the line between letting them have the freedom to live on the streets vs forcibly incarcerating for their own good. We wouldn't leave a small child to live on the streets alone even if that's what they said they wanted, but we seem to do it with adults that have the reasoning skills of a small child.

SaveyourSelf writes:

David Henderson said, "Every time I've asked the person if he/she wants a Clif Bar, the answer has been 'Yes.'"

What do you get out of the exchange?

I served a three-year term on the Orange County, North Carolina, Board of Social Services. This experience, in which I was routinely the only one of five who voted against good-sounding charitable proposals, motivated me to think carefully about my own impulses of charitable giving, to ferret out and codify what my instincts had been telling me.

For me an applicant must pass three conditions: circumstance, motivation, and relationship to me. These are described in Circles of Support: A Libertarian View of Charity.

David R. Henderson writes:

@SaveyourSelf,
What do you get out of the exchange?
The satisfaction of helping someone in need.

@David Henderson
National parks often instruct tourists not to feed the bears. Do you agree with this instruction as a strategy for management of public space? If you do agree with that instruction, I would be educated by learning how you compare these two situations, not feeding bears with feeding panhandlers.

Vivian Darkbloom writes:

" I buy something at 70 cents each and give it to someone who has a substantial probability of valuing it at above 70 cents."

I think that value hypothesis is easily testable. I suggest you load up on 10 Clif bars and $7 in change. Ask the first 10 beggars you encounter which they would prefer. The standard of "substantial probability" is not particularly precise, but my guess is that you mean something like 2 out of 3 would take the Clif bar.

Philo writes:

I'm already carrying lots of stuff around with me; to carry also a handful of Clif bars would be a serious nuisance. It would cost me significantly more than the 70-cent cash outlay to hand out Clif bars to all the beggars I encounter. And the personal satisfaction would be minimal, for I suspect that most of these beggars are not really "in need."

Philo writes:

In other words, "Bah! Humbug!"

Maximum Liberty writes:

I think the main benefit is that the professor's approach distinguishes between two types of panhandlers. One type is those panhandlers who are genuinely hungry (even if they will also spend on booze and drugs). The second type is a little less usual. They are usually younger, and are just looking to pickup extra money for booze or drugs. They are often not homeless, and I suspect many of them live at their parents' homes. They will turn down offers of food.

The two types signal the same way until you make an offer of food.

Brad writes:

I wonder if the homeless use the cliff bars as currency, exchanging them for other goods from other homeless folks?

Granite26 writes:

Thanks for this post. It's a genuinely new idea to me, and makes great strides towards resolving my own moral dilemmas concerning panhandlers

David R. Henderson writes:

@Granite26,
Thanks for this post. It's a genuinely new idea to me, and makes great strides towards resolving my own moral dilemmas concerning panhandlers.
You’re very welcome. And thank you for commenting.

Chris writes:

I'm late to this thread, but trying something like this in India is a mistake, since they will turn around and transform it into (drumroll...) cash! And probably at a loss.

awareINnaples writes:

I generally say "Ill give you money, but only if you promise to spend it on alcohol". If they laugh, I give them a cliff bar

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