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Dear Economist
Old 06-06-2010, 05:52 PM   #1
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Dear Economist

For the economic junkies among us, here's an entertaining blog by Tim Harford, who uses economic principles to address everyday questions:

Tim Harford — Dear Economist

I am ROFL over the February 6th entry, about the little girl who has figured out how to buy forbidden sweets (candy)...

Dear Economist,
When my daughter reached the age of six, my wife and I decided to give her a small amount of pocket money. However, access to money of her own would allow her to buy herself large quantities of sweeties. So instead of giving her cash in hand we keep track of the money she’s accumulated, which she can then use to purchase anything she wants so long as it’s not food or drink.
This worked well, but for her eighth birthday a number of kind friends and relatives gave her cash. She now plans to keep this money as an ongoing sweeties budget while buying birthday presents from her saved pocket money to show her benefactors.
Short of confiscating her birthday money, is there any way we can hope to discourage this?
Outmanoeuvred parent

Dear Outmanoeuvred,
Your daughter has discovered that money is fungible. As they say in the aid industry, you may think your grant is funding your favourite project, but it’s really funding the president’s favourite project. Thus, you give money on condition that it is spent on an extra hospital, the recipient builds the hospital he was planning to build anyway, sends you the receipts and increases his expenditure on limousines and AK-47s. (Did he spend your money on the hospital or the limousines? The question is meaningless, and that’s fungibility.)
Your plan worked only while your daughter had no access to outside sources of funding.
I can see three options. You rule out confiscation. The second is to offer incentives for low sweet consumption by increasing or reducing your daughter’s pocket money. The trouble is that sweet consumption may be hard to monitor. The third is to admit defeat and let your daughter make her own choices. Sweets have costs and benefits, and your daughter appears to be a better economist than you are.


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Old 06-06-2010, 06:11 PM   #2
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Lovely blog.

I particularly enjoyed this question.

Dear Economist,
My partner and I are ready to register for gifts and we are seeking the most efficient way to do it. Most registries allow any gift to be returned to the store for cash. Additionally, one can often find 20 per cent coupons for this store (meaning that one can return a gift worth $100 and then buy it back with a coupon for $80). Which gifts should we register for? I am worried that if we register for lower-priced gifts, then people who have a higher willingness to pay will take advantage of the consumer surplus and buy a cheaper gift. Or should we just register for the gifts we want because the opportunity cost spent returning gifts and buying new items will be too high?
Meir, New York

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Old 06-07-2010, 10:00 AM   #3
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Originally Posted by Meadbh View Post
your daughter appears to be a better economist than you are.
Looks like she's doing a better money-management job than they expected...

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Old 06-07-2010, 12:56 PM   #4
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Originally Posted by Nords View Post
Looks like she's doing a better money-management job than they expected...
Looks like their primary objective has been accomplished. Time to declare victory and go home.
T.S. Eliot:
Old men ought to be explorers
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