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Rent exhaustion and retail giveaways

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Wednesday, May 9, 2007

Tim Harford, the Financial Times’ economics columnist, writes about rent exhaustion in his most recent column.


there’s the ”curse of the free lunch” - or what a more strait-laced economist would call ”rent exhaustion”. It works like this: I fly somewhere deserving - say, Dar es Salaam - and hand out dollar bills to strangers. I’ll do it next Tuesday, starting at noon; please form an orderly queue. This would be guaranteed to produce a long line of people. Someone who made a dollar an hour would be willing to queue for up to an hour; someone on a dollar a day would be willing to queue for a day.
At least the people who found it worthwhile to queue would be poorer than those who didn’t. But many in the queue would surely be better off earning it by doing something productive. Each dollar I gave away would be worth only a few cents once you subtracted the cost of the recipient’s time - by trying to get the handout, they are destroying much of its value.


It seemed awfully shallow to be thinking of this in juxtaposition with people living on less than a dollar a day, but this analysis made me think of the huge amount of time I have spent chasing deals—in thrift stores or sales or wherever—that was not adequately compensated for by the actual value of what I ended up with. When I was a student and had little money but lots of time (I wasn’t an especially serious student, I suppose) I was susceptible to schemes that allowed me to waste lots of time for a little bit of gain. Killing time was an end in itself for me then, which is regrettable—which is the thing for which I tend to be looking for somebody other than myself to blame. Hence the following…


The costs of chasing deals (like opportunity costs) are not immediately apparent, a fact which marketers and retailers routinely exploit when they promise free gifts or once-in-a-lifetime opportunities or rebates or money-back guarantees or what have you—they get you to pay in effort what you save in money, while potentially earning your gratitude at the same time (as well as making the brands in question more familiar to you through the arduousness of the process).

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