Can doing good be bad?
- At food banks, the holiday season brings an avalanche of food from donors when the charity could purchase the food more cheaply and use volunteer time more wisely. As a result, charitable food donations misallocate resources.
- According to research from economist Joel Waldfogel, we tend to undervalue the price of a gift we dislike while giving much greater value to what we buy for ourselves. As a result, gift giving destroys value.
However, this Economist article suggests remembering that 1) a gift we dislike may be good for us, 2) a gift can be an extravagance we otherwise would not purchase, and, perhaps most importantly, 3) the process of giving adds intangible value to the gift.
The Economic Lesson
Wasted giving could be called “deadweight loss.” Described by Freakonomics, it represents the difference between the cost of an item and how much the recipient values it. So, if you are a Yankee fan and someone gives you a Boston Red Sox hat, the deadweight loss would be 100% of the price. The amount by which pleasure falls is the deadweight loss.
But, is the deadweight loss of gift giving to friends and charities offset by its intangible benefits?
An Economic Question: How might you estimate the deadweight loss of gifts you have received?
It is safe to say that ten years ago, not many people would have imagined that we could purchase music right off of the Internet and have the proceeds go straight to charity.
One of the more reasonable ways to contribute to the Red campaign is to buy
On Milton Friedman…
“At a conference 34 years ago, celebrating Friedman’s 60th birthday, I presented a paper questioning that dictum by noting that the vast part of apparently nonprofit-oriented behavior by corporate managers was really — and necessarily — a profit-maximizing response to business, social or political pressures dressed up to look like something else. For such a strategy to be successful, the behavior had to appear to be nonprofit maximizing, and, of course, had to be called something like “social responsibility.”
Since it was difficult or impossible to distinguish a profit motive from a charitable motive in any particular corporate action, a strong rule against corporate altruism, as Friedman was advocating, would invite judges to examine the propriety of a significant set of managerial decisions. ”
-Article by Henry G. Manne (Wall Street Journal) (11-24-06)
We’re not the only ones who think businesses have other motives.
Posted by: adminEcon
Tags: charity, necklace, profit, UNICEF
Charitable items have entered the world of small brands. For instance, a rare (yet noteworthy) example of this is Kiehl
Posted by: adminEcon
Tags: charity, profit motive, YouthAIDS