Markets in Everything, Food Charity Edition

Local volunteers sort 12,000 lbs of food provided by TLC and Feeding America (AP)
November 3, 2015

Here's a fascinating story via Alex Tabarrok at Marginal Revolution about a food bank that instituted market-based reforms in order to better distribute goods across the country. "Allocating food is not an easy problem," Tabarrok writes. "How do you decide who gets what while taking into account local needs, local tastes, what foods the bank has already, what abilities the banks have to store food on a particular day, transportation costs and so forth." Alex Teytelboym at the Week explains how they solved the problem:

Every day, each food bank is allocated a pot of fiat currency called "shares." Food banks in areas with bigger populations and more poverty receive larger numbers of shares. Twice a day, they can use their shares to bid online on any of the 30 to 40 truckloads of food that were donated directly to Feeding America. The winners of the auction pay for the truckloads with their shares. Then, all the shares spent on a particular day are reallocated back to food banks at midnight. That means that food banks that did not spend their shares on a particular day would end up with more shares and thus a greater ability to bid the next day. In this way, the system has built-in fairness: If a large food bank could afford to spend a fortune on a truck of frozen chicken, its shares would show up on the balance of smaller food banks the next day. Moreover, neighboring food banks can now team up to bid jointly to reduce their transport costs.

This bit was amusing:

Initially, there was plenty of resistance. As one food bank director told Canice Prendergast, an economist advising Feeding America, "I am a socialist. That's why I run a food bank. I don't believe in markets. I'm not saying I won't listen, but I am against this." But the Chicago economists managed to design a market that worked even for participants who did not believe in it. Within half a year of the auction system being introduced, 97 percent of food banks won at least one load, and the amount of food allocated from Feeding America's headquarters rose by over 35 percent, to the delight of volunteers and donors.

What's interesting is that this program was designed by market-oriented economists at the University of Chicago; their efforts have greatly increased the efficiency of food distribution and helped fewer people across the country go hungry. Keep that in mind the next time someone kvetches about the influence of the dastardly Koch Brothers funding pro-market programs on campuses around the country.