Thursday, February 7, 2013

Rent dissipation and Greek food riots

Is food really "free" if you have to wait in a huge line and risk getting trampled by an unruly mob to get it? This must be what many Greeks are asking themselves right now. A farmer's protest which distributed free food ended in disorder and several people were seriously injured.

More generally, this illustrates a concept raised by Gordon Tullock: rent dissipation. If there is "free money" available, people will compete for it up until the costs of competing are equal to (or occasionally greater than) the value of the prize.

For example, when universities give out free tickets to basketball games, students stand in line for a week in advance to get them. People will be willing to stand in line until the value of the ticket is equal to the value of the time lost, which (not coincidentally) is probably very close to what the price would have been had the tickets been offered for sale. The same logic can be applied to political contests, online deal hunting, and many other activities.

So, some people in Greece received free food and were better off as a result of the giveaway, but a few people were hurt in the process. Gains equalize losses. Rents are dissipated. The lesson: there truly is no such thing as a free lunch.

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