Efficient Allocation VS Galloistic Allocation
Posted: Fri Jul 15, 2016 10:09 pmAs some of you probably already know... I'm a very big fan of resources being "efficiently" allocated. In my thread on crowdfunding decisions, Galloism pointed out, for the gazillionth time, that the efficient allocation of resources does not take into account the fact that people do not all have the same amount of money. While composing my reply to him it dawned on me that I've never run across a term for a method of allocation that does take wealth/income inequality into account. So I took the liberty of naming such an allocation method after him.
fair allocation = based on randomness or first come first serve
efficient allocation = based on people's willingness to pay
galloistic allocation = based on people's willingness and ability to pay
Let's consider an example. The occupants of a house move away. Who should get the newly available house? With the fair allocation method a family could be randomly chosen from a list... or the house could be given to the family that's been waiting the longest. With the efficient allocation method the house could simply be sold to the highest bidder. With the galloistic allocation method the house could be sold to the bidder who was willing to spend the greatest percentage of their wealth. If I was willing to spend 50% of my wealth on the house... but you were willing to spend 51% of your wealth on the house... then you would get the house despite the fact that 50% of my wealth was $5,000,000 dollars but 51% of your wealth was $51 dollars.
Which allocation method do you prefer? Personally, I prefer the efficient allocation because I perceive a decent correlation between wealth and beneficial behavior. The more beneficially you use society's limited resources... the more money you'll earn... and the more money you'll earn... the greater the amount of society's limited resources you can beneficially use. Beneficial behavior is incentivized. The correlation between wealth and beneficial behavior isn't perfect though because so far none of you have paid me any money for my super beneficial posts.
Darn free-rider problem. 
fair allocation = based on randomness or first come first serve
efficient allocation = based on people's willingness to pay
galloistic allocation = based on people's willingness and ability to pay
Let's consider an example. The occupants of a house move away. Who should get the newly available house? With the fair allocation method a family could be randomly chosen from a list... or the house could be given to the family that's been waiting the longest. With the efficient allocation method the house could simply be sold to the highest bidder. With the galloistic allocation method the house could be sold to the bidder who was willing to spend the greatest percentage of their wealth. If I was willing to spend 50% of my wealth on the house... but you were willing to spend 51% of your wealth on the house... then you would get the house despite the fact that 50% of my wealth was $5,000,000 dollars but 51% of your wealth was $51 dollars.
Which allocation method do you prefer? Personally, I prefer the efficient allocation because I perceive a decent correlation between wealth and beneficial behavior. The more beneficially you use society's limited resources... the more money you'll earn... and the more money you'll earn... the greater the amount of society's limited resources you can beneficially use. Beneficial behavior is incentivized. The correlation between wealth and beneficial behavior isn't perfect though because so far none of you have paid me any money for my super beneficial posts.
Darn free-rider problem.