Which allocation method do you prefer?

[Xerographica]

As some of you probably already know... I'm a very big fan of resources being "efficiently" allocated. In my thread on crowdfunding decisions, a certain member 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 this member 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. It turned out that he, and the powers that be, did not appreciate my attribution.

fair allocation = based on randomness or first come first serve
efficient allocation = based on people's willingness to pay (WTP)
linvoid 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 linvoid 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 that you can beneficially use. More benefit means more power/influence/control. Beneficial behavior is incentivized/rewarded. Most economists agree that incentives matter.

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.

[Vedilia]

If you want bias to be eliminated you could go random.
If you want people to be compensated for their zeal, you could go for the efficient one or the linvoid, but that introduces a bias towards the rich which I rather dislike.
Incentives do matter, yes.

[Threeman]

Full communism, of course.

[Xerographica]

If you want bias to be eliminated you could go random.
If you want people to be compensated for their zeal, you could go for the efficient one or the linvoid, but that introduces a bias towards the rich which I rather dislike.
Incentives do matter, yes.

The point of the linvoid allocation is to try and minimize a bias towards the rich. With linvoid allocation... whether or not you get a home/car/kidney would be determined by the percentage of your wealth that you would be willing to trade for it.

[Bogdanov Vishniac]

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 that you can beneficially use. More benefit means more power/influence/control. Beneficial behavior is incentivized/rewarded.

Ah yes, like that paragon of societal virtue, the tobacco industry.

[Xerographica]

Full communism, of course.

So not fair, or efficient or linvoid. Which leaves... what?

[Vedilia]

If you want bias to be eliminated you could go random.
If you want people to be compensated for their zeal, you could go for the efficient one or the linvoid, but that introduces a bias towards the rich which I rather dislike.
Incentives do matter, yes.

The point of the linvoid allocation is to try and minimize a bias towards the rich. With linvoid allocation... whether or not you get a home/car/kidney would be determined by the percentage of your wealth that you would be willing to trade for it.

Oh. I had that around wrong I guess.
Well, I guess that could work.

[Threeman]

Full communism, of course.

So not fair, or efficient or linvoid. Which leaves... what?

To each according to their needs. Who said life was fair?

Spoilers: It's not.

[Xerographica]

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 that you can beneficially use. More benefit means more power/influence/control. Beneficial behavior is incentivized/rewarded.

Ah yes, like that paragon of societal virtue, the tobacco industry.

Obviously lots of people buy lots of cigarettes. Personally, I don't buy any cigarettes. There aren't a lot of options here...

1. Nobody buys cigarettes
2. Everybody buys cigarettes
3. People can choose whether they buy cigarettes

[Xerographica]

So not fair, or efficient or linvoid. Which leaves... what?

To each according to their needs. Who said life was fair?

Spoilers: It's not.

So... allocation by expert? Expert allocation? Experts decide who should get houses, cars and kidneys?

[Bogdanov Vishniac]

Obviously lots of people buy lots of cigarettes.

Yep. And in so doing, the tobacco industry inflicts disproportionate costs in terms of healthcare expenses and lost productivity. Which rather disproves the idea that there's any sort of strong correlation between the profitability/wealth generated by an action in a market and that action's benefit to society in and of itself.

[Atomic Utopia]

If you want bias to be eliminated you could go random.
If you want people to be compensated for their zeal, you could go for the efficient one or the linvoid, but that introduces a bias towards the rich which I rather dislike.
Incentives do matter, yes.

The point of the linvoid allocation is to try and minimize a bias towards the rich. With linvoid allocation... whether or not you get a home/car/kidney would be determined by the percentage of your wealth that you would be willing to trade for it.

But that could result in all kinds of insanity, not to mention the inability to hold large numbers of objects at once in order to improve efficiency. It also could be exploited rather easily to gain rather destructive outcomes.

For example:

Say there was a new nuclear power station on the market, freshly built and ready to be run. If I decided that I really wanted it, I, as an individual, could pay the vast majority of my income to purchase it. Considering my income is rather small in comparison to the reactor cost, and while I could probably maintain it and generate electricity, I would definitely not be the most experienced and best operator. So in essence the reactor would be tossed to a person who may not have any actual clue about how to run it, but instead decided to spend some absurd quantity of their income on it while they were drunk or possibly too excited about the possibility of owning a nuclear power station.

It could also be exploited rather ruthlessly by most anyone. As long as you can transfer it to some other organization without going through the process again you could obtain a reactor by paying some variation of 99.999999% of a rather small quantity of resources granted to you by your company. Once the transfer is completed you can then get more money from the company and do it again on another reactor and so on.

The same goes for the fuel rods. I could buy up a ton of fuel rods for a reactor for extremely cheap on a silly small income, and then reactors running out of fuel rods would be forced to buy it from me using most of their income, making it rather impossible for them to do anything effectively. Where fuel costs currently are 5% of their costs, I could make it close to 100% in a single move.

You can replace reactor with really anything, but I was using nuclear reactors because I am somewhat familiar with how they operate and what those costs are IRL.

So to put it simply, such a system is completely infeasible in real life. Instead we should use efficient allocation with socialism or capitalism to run the system, giving resources to those that can best manage them. I prefer capitalism because it is rather proven, but socialism also could, in theory, work (and much like thermonuclear fusion, has only really worked in theory or in cases generally not applicable to a normal economy).

[Bhanistan]

Full communism, of course.

Yup.

[Galloism]

I do like how you took your previous strawman thread, copied it almost verbatim, removed my name, and then proceeded to attack a system you invented I never endorsed.

Top shelf strawmanning there.

No. The system described is completely unworkable in real life. Our system currently works well enough for the task. It's not perfect, but it's workable.

[Xerographica]

I do like how you took your previous strawman thread, copied it almost verbatim, removed my name, and then proceeded to attack a system you invented I never endorsed.

Top shelf strawmanning there.

No. The system described is completely unworkable in real life. Our system currently works well enough for the task. It's not perfect, but it's workable.

Allocations either should, or should not, account for disparities in people's ability to pay. Which is it?

[Galloism]

I do like how you took your previous strawman thread, copied it almost verbatim, removed my name, and then proceeded to attack a system you invented I never endorsed.

Top shelf strawmanning there.

No. The system described is completely unworkable in real life. Our system currently works well enough for the task. It's not perfect, but it's workable.

Allocations either should, or should not, account for disparities in people's ability to pay. Which is it?

It should not as it's unworkable in practice. This does not erase the fact that disparity in the relative value of a dollar is a problem, and a person who spends ten times as much on X may or may not indicate he values it ten times as much. That's a false assumption.

Depending on the nature of the problem however, money should sometimes be removed from the allocation process altogether because more efficient systems may exist for that problem. One of the causes for that may be the disparate value of a dollar between individuals and to avoid shitting on the poor, as you so frequently advocate.

[Xerographica]

Obviously lots of people buy lots of cigarettes.

Yep. And in so doing, the tobacco industry inflicts disproportionate costs in terms of healthcare expenses and lost productivity. Which rather disproves the idea that there's any sort of strong correlation between the profitability/wealth generated by an action in a market and that action's benefit to society in and of itself.

The size of the tobacco industry does not reflect its worth to society?

I don't buy cigarettes but I do buy meat. Does the size of the meat industry reflect its worth to society? Even though I buy meat I do feel a twinge of guilt. So I do like the idea of guilt-free meat. In other words... meat grown in a laboratory. "Cultured" meat. But does the size of the cultured meat industry reflect its worth? Well... I've never bought cultured meat. I've never donated any money to cultured meat R&D.

You clearly perceive that unhealthy cigarettes are a big problem for society. But have you ever spent any money on the R&D of healthy cigarettes?

I'm sure that you've benefited at least a little from some NS posts. But have you ever spent any money on any beneficial NS posts?

Most, if not all, disparities between benefit and power boil down to the free-rider problem. Which is why I'm a pragmatarian.

[Galloism]

But have you ever spent any money on the R&D of healthy cigarettes?

There's absolutely no such thing - nicotine is a critical component of cigarettes and is inherently harmful.

It's like asking about R&D for healthy cyanide, which, incidentally, is also part of the smoke when burning a cigarette (it's not within the cigarette itself, but is one of the byproducts when you use it in its intended fashion).

[Xerographica]

Allocations either should, or should not, account for disparities in people's ability to pay. Which is it?

It should not as it's unworkable in practice. This does not erase the fact that disparity in the relative value of a dollar is a problem, and a person who spends ten times as much on X may or may not indicate he values it ten times as much. That's a false assumption.

Depending on the nature of the problem however, money should sometimes be removed from the allocation process altogether because more efficient systems may exist for that problem. One of the causes for that may be the disparate value of a dollar between individuals and to avoid shitting on the poor, as you so frequently advocate.

Why do you think that linvoid allocation is unworkable in practice?

Juries currently vote on whether the defendant is innocent or guilty. Would it work for jurors to spend their money on the verdict instead of voting? Sure. You might think it's undesirable but it's obviously workable. What about linvoid allocation? Would it work for the verdict to be determined by percentage of wealth that the jurors were willing to spend on the verdict? It would be easy enough to get income information from the IRS. It wouldn't perfectly reflect wealth but it would be close enough. Wealth inequality would be less of an issue.

Does it matter how strongly a jury believes in a defendant's guilt or innocence? If you support jurors voting... then you don't care about strength of belief. If you support jurors spending their money... then you do care about strength of belief. If you care about what percentage of their wealth jurors are willing to spend... then you care about strength of belief accounting for wealth disparities.

You're the one who always bring up the "problem" of willingness to pay not accounting for disparities in ability to pay. So it's so crazy and ridiculous that you can't imagine any situations where linvoid allocation would be superior to the current allocation methods.

[Bogdanov Vishniac]

The size of the tobacco industry does not reflect its worth to society?

Yep. It generates a huge amount of associated healthcare costs, lost productivity and other externalities like good old fashioned human suffering.

Most, if not all, disparities between benefit and power boil down to the free-rider problem.

Uh no. Cigarettes and most tobacco products in general are pretty demonstrably non-beneficial to both the individual and society. We have study after study dating back decades to show that. And yet the cigarette industry continues to thrive, in part because it does a very good job of trying to mitigate the perception of the harm it actually does through aggressive lobbying and marketing around the world.

[Kubra]

randomness obv
why is this a question

[Xerographica]

Uh no. Cigarettes and most tobacco products in general are pretty demonstrably non-beneficial to both the individual and society. We have study after study dating back decades to show that. And yet the cigarette industry continues to thrive, in part because it does a very good job of trying to mitigate the perception of the harm it actually does through aggressive lobbying and marketing around the world.

You completely failed to address my argument.

Me: The free-rider problem
You: No. It's an awareness problem

I'm pretty sure that most people are aware that cigarettes are bad for you. Just like most people are aware that condoms are good for you. But for plenty of people... they perceive the risk to be worth it. And, as you clearly understand, the consequences of risky behavior are often borne by society.

I'm not arguing that society does not have to pay the price. I'm arguing that the free-rider problem largely explains the disparity between benefit and power. You're welcome to continue ignoring my argument if you are incapable of addressing it. But if you don't understand my argument... then please feel free to ask for clarification.

[Nocturnalis]

If I was in the position to sell a house, and I had to choose between one person who offered 50% of their wealth - $5,000,000 - and a second person who offered 51% of their wealth - $51 - then I just have one question...

why the hell would I choose to sell to the second person?

Efficient is...efficient!

[Aapje]

The problem with this question is:
- that it doesn't distinguish between types of goods (necessities vs basic goods vs luxuries).
- that it only looks at the supply side and even then, at only priced goods (many countries provide some goods for lowered cost or 'free' = tax payer funded)
- it seems to argue that you have to choose between 100% free market or 100% equality in property, which are both extremist positions that very few people want (and both can't work in reality).
- your chosen example is not neutral and biases people

It's perfectly logical to (for example) want linvoid allocation for something like healthcare and efficient allocation for caviar, because the first is something that everyone should have and the second is just a luxury.

Furthermore, if you want to partially remedy the effects of income inequality, you can do so at the demand side as well. For example, if you want everyone to be able to afford food, you can give the poor money so they can afford food (demand side), you can subsidize food or legislate prices (supply side); or you can do both. In practice, different remedies work better for different goods. For example, it's very hard to properly put a price on road use, so most roads are tax-payer funded. In many countries they subsidize fuel, but most fuel is used by the rich, so most subsidies then go to the rich. The subsidies also encourage overuse with negative effect on pollution. So it's a very bad remedy and much better to instead give income support to the poor, so they can afford more expensive fuel, rather than have cheap fuel.

[Forsher]

As some of you probably already know... I'm a very big fan of resources being "efficiently" allocated. In my thread on crowdfunding decisions, a certain member 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 this member 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. It turned out that he, and the powers that be, did not appreciate my attribution.

fair allocation = based on randomness or first come first serve
efficient allocation = based on people's willingness to pay (WTP)
linvoid 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 linvoid 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 that you can beneficially use. More benefit means more power/influence/control. Beneficial behavior is incentivized/rewarded. Most economists agree that incentives matter.

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.

Your so-called "fair allocation" is entirely arbitrary... It's basically like voting for the first person/option on the ballot.

To be honest, I would describe the "efficient" case as being fairer. After all, sellers/producers have every right to not so sell/refuse an offer*, which means that a "linvoid" system would have to necessarily deny that right. This doesn't seem just. In fact, generally when one wants to criticise the fairness of markets one doesn't suggest they are unfair because balancing the interest of two parties is a party too many... rather one proposes that there are other parties involved, but only two who influence the outcome (see: externalities). However, what this means is that you strawman the basic idea of markets... it's willingness to pay and willingness to accept payment.

If we were to roll with the housing example and the question of fairness a bit further we come to the very popular (and at least here) permanently topical question of housing affordability. Consider this blog post a useful introduction to the subject.

I also don't think it is meaningful to discuss a "free-rider problem" when discussing a "product" that you know you a) won't get paid to produce and b) could easily be excludable but isn't.

Furthermore, I wouldn't value your "decent correlation" too much by the way. After all, rubbishmen are just as important as doctors**... do they get paid as much? No. Best part is, they're important on relatively similar planes (e.g. public health).

*But not to renege on an agreement already made... that's a contract, and unless land is involved (to my knowledge) it need not be written down.

**In fact, one can easily argue that those responsible for sanitation are much, much more important (at least GDP wise) than doctors. After all, it is all very well and good treating people who are already ill, but those who help ensure cities are not death traps through prevention enable urban wealth as we know it.

The problem with this question is:
- that it doesn't distinguish between types of goods (necessities vs basic goods vs luxuries).
- that it only looks at the supply side and even then, at only priced goods (many countries provide some goods for lowered cost or 'free' = tax payer funded)

As pointed out above, the OP completely ignores that suppliers have objectives/goals/agency...

- it seems to argue that you have to choose between 100% free market or 100% equality in property, which are both extremist positions that very few people want (and both can't work in reality).

Xero has this habit of presenting what looks like some kind of economic system whilst actually presenting a different question. Xero's threads are actually about different ways of voting and thus what his questions explore, practically always, is whether or not system X is a better way of considering how much some individual values object Y than some other system Z.

- your chosen example is not neutral and biases people

It's perfectly logical to (for example) want linvoid allocation for something like healthcare and efficient allocation for caviar, because the first is something that everyone should have and the second is just a luxury.

Except Xero's right... incentives do matter.

When you've got a pay cheque to pay cheque life, health/doctor's visits function as a massive luxury... you are willing to sacrifice very little (practically none) of your income, even as a proportion, because your impression is that you need to spend money on bills, on food, on (probably) interest (because pay cheque to pay cheque means you have to get credit, generally from pseudo-loan sharks, eventually), on fuel and a bunch of other, much more immediate costs. You have 0 incentive to spend money on something that you probably don't need when the opportunity cost of going to the doctor is something that is perceived as needed.

Basically, while some sort of "sacrifice ratio" sounds like a nice way of measuring value it is ultimately bunk because it ignores that different income groups have much lower discretionary incomes as a proportion of their disposable incomes (in fact, conceivably many people have no discretionary income). That is, linvoid and "what you can pay" aren't actually the same system. It doesn't capture relative valuations either because you might very well value health and fuel the same, but one is a cost you know you have to meet now...