Wednesday, February 25, 2009

One more on the Economics of Begging

Thanks to Slumdog millionaire, people should now realize that begging is somewhat of an organized industry, at least in pockets (I suspect in most big cities). Given that, it probably makes sense to avoid giving, at least if you are at a busy intersection. The reason is obvious - your rupee is not going completely to the sympathy-generating person who has triggered the act - it is covering the rent that the alm-seeker has to pay to be able to be there in the first place. That is, if he/she is not just an 'employee' of the 'owner' of a begging business. In which it is even worse, since your rupee is going towards the recovery of investment that the 'owner' has made in building his business - right down to the costs incurred in the abhorrent act of dis-membering the person(s). And so the economic lesson here is this: Walk away from a situation where an alm-seeker is actively seeking alms since you will end up paying for all the externalities involved in getting the alm-seeker to that place. A better alternative would probably be to surprise someone who is not actively seeking alms but is clearly in need. How to identify that in the absence of a signalling mechanism is a different matter altogether. Suffice it to say that this is the paradox in  economic transactions (where information asymmetry is involved - which pretty much covers almost all transactions): to make a transaction happen between two parties (buyer-seller; seeker-donor), there is a certain amount of signalling that is required to bring the two together, which in turn - injects additional costs to the transaction, which in the strictest economic sense is non-value added.