Caroline Sutton of Slow Boring explains that an infusion of market methods revitalized how Feeding America distributed donated food to food banks across the nation:
The Chicago team proposed something that, at the time, sounded like an odd choice for a charitable network: a market, complete with a custom-designed currency called “shares.” Every food bank would receive an allotment of shares based on how many people it served. Those shares could then be used to bid on truckloads of food in a daily national auction.
If a food bank desperately needed cereal, it could signal that by bidding more. If it already had enough cereal but urgently needed rice, it could save its shares for that instead. If something undesirable arrived — like potato chips or, true story, Tupperware lids missing their containers — the auction assigned it a negative price: taking it earned you extra shares.
It was a system designed to convert preferences (information each food bank had about its community’s needs) into visible, actionable signals. Prendergast describes this as the price discovery function of markets: the mechanism that reveals “how much you like a certain kind of food compared to another kind of food.” The bidding activity quickly revealed patterns no centralized planner could have seen.
Cereal, for instance, wasn’t just more valuable than broccoli; it was dramatically more valuable. The economists had assumed maybe a 6:1 ratio in preference intensity. The auction showed a ratio closer to 35:1.
Produce, which is perishable and already abundant in the donation pipeline, often cleared at nearly zero shares. Shelf-stable foods like pasta, rice, and canned goods drew consistently high bids. Potato chips, which are low in nutrients and break easily during transport, were so unwanted they routinely required subsidies to move.
And the system changed donor behavior as well. Under the old queue system, donors could wait days for a food bank to accept or reject an item, leaving their warehouses clogged with product they were trying to move quickly. But once 200 food banks were simultaneously able to bid, donations moved immediately. The increased liquidity, as Prendergast put it, made donors more willing to give, and the supply of food moving through the network rose by 50 million pounds in the first year after the new system’s introduction.
Prices are information signals, and it is very hard to run an economy without that information. My favorite story about this problem concerns the attempts of the early Soviets to set up a socialist economy. Their economists kept searching for ways to encode and transmit this vital information, including, at one point, a sort of imaginary money much like Feeding America's "shares," but they never did solve the problem and as a result Soviet citizens were a lot poorer than they needed to be.
2 comments:
The bidding activity quickly revealed patterns no centralized planner could have seen.
Utter nonsense. Anyone with any familiarity with food scarcity and the psychology around it - not even actualy personal experience with lack of food, just secondhand knowledge - could have told you these things.
Of course the demand for cereal is going to be massive, and the demand for fresh produce is going to be almost nothing, given the sorts of people who need help from food banks. These are extremely poor people - and when you are that poor, you are constantly exhausted and stressed out and overwhelmed. You don't want to spend 10 minutes chopping fresh vegetables before you even start making dinner - you want the convenience and simplicity and the stress relief of being able to open a can of pre-cut vegetables and dump them in a pot or pan, and then go sit down for a moment while things cook, and try not to panic about the late rent and the engine problems your car is having, and your job not giving you enough hours this week, and all the rest.
Likewise, you don't want to have to worry about making sure you use those fresh vegetables within a couple days of getting them, otherwise they'll spoil and be wasted. You can't afford to waste food, and fresh vegetable force you pre-plan using them in a short time window - which is, again, not convenient, or simple, or stress relieving. It's one more thing you have to try to juggle in your hectic, unpleasant, stressed-out life. When you're that poor, you don't always know where your next meal is coming from. You don't always know when you'll have time to cook a meal, and even when you plan to make a meal one night, necessity and misfortune might upend all such plans and force you to feed yourself and your family in a totally different way, in a totally different place, and a totally different time. Even if you want to make a home cooked meal, you just might not logistically be able to do so for a while, unexpectedly, and by the time you are, your vegetables have gone off and you have to throw them out, and you can't just go back to the food bank for more without concern.
Cereal? It's as easy as it gets. You dump it in a bowl, maybe add milk, and eat. You can eat it on demand, and it's appetizing at any time of day. It's often fairly highly caloric, but it's usually reasonably nutritious. But most importantly, it has high satiety - it fills you up reasonably, and keeps you feeling full longer. And that's a major consideration when you might spend the next 8 to 12 hours on your feet at work, and need to not be suffering hunger pains all day when you're already exhausted and stressed out. The physical and mental toll of food scarcity and having to stretch your resources is easy for more privileged people to fail to recognize or appreciate. You often don't appreciate hunger until you've lived it.
Potato chips being unpopular? Obvious. They're not filling - you feel hungry again almost immediately. They also aren't very enjoyable to eat a lot of by themselves. If you need to fill your stomach so you can get through the day and not be miserable, it's so much more palatable to eat half a box of cereal by yourself than it is to eat an entire bag of chips. Potato and salt and grease is fine as a small side with something real, like a sandwich - but it makes about the worst actual meal you could imagine.
Don't get me wrong - I'm glad these system of points and shares is revealing useful information to people and improving distribution. But if "no centralized planner" could have figured these things out, then we need FAR better centralized planners. Maybe talk to an actual expert, like a nutritionist, or a psychologist, for crying out loud. Or maybe even just talk to the poor people you're handing food out to, and ask what THEY value and need?
G.Veloren: Aren't you nitpicking a bit? Yes, the case of "cereal v. produce" is foreseeable (but not the scale, evidently), but the "changed donor behavior" might not be: "once 200 food banks were simultaneously able to bid, donations moved immediately [...], and the supply of food moving through the network rose by 50 million pounds in the first year."
Markets are real, they are valuable, and they are created by us.
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