In my post Economics 102: The Law of Supply and Demand I posited that “demand” includes, but means more than, “want” or “desire” for an item but requires “wherewithal” to be effective. I said, “Demand is not simply a combination of desire and wherewithal, but involves the consumer’s choosing where to allocate resources or increase them.”
This concept of demand can be distorted by what I will call the “SEP”((The more famous use of those initials is by Douglas Adams in Life, the Universe, and Everything, book three in his five- (or is it six?) book Hitchhiker’s Guide to the Galaxy trilogy. In that work SEP stands for “somebody else’s problem” and it describes a particular field that renders an object ignored (and therefore functionally invisible) because it stimulates the brain’s tendency to ignore something with which it is uncomfortable as “somebody else’s problem.” )) problem, which means “someone else is paying.”
A simple example is a meal in a restaurant. If you’re paying, you might skip the appetizer and dessert and have only water to drink; but, if someone else is paying, you are more likely to splurge.1
Another example is provided by the means by which New Jersey municipal land use agencies pay for the services of their attorneys, engineers, planners, and other professionals in reviewing applications for development. The applicant is required to fund (and replenish when depleted) an escrow account which is used to pay the municipal professionals. The applicant has no control over the selection of these professionals or their hourly rates and little opportunity to challenge their bills. Municipalities, which set the rates and can control the time expended on the review, have little incentive to do so, because “someone else is paying.”
SEP might be seen as increasing wherewithal or as affecting the consumer’s choice in the allocation of resources. It creates (or contributes to) a disconnect between what is paid for an item and the consumer’s((“Consumer” here means the person who effectively decides what goods are purchased, not the person who actually pays therefor.)) perceived cost. Wherever it sits analytically, it can have the effect of increasing the cost of economic goods, especially where “someone” is someone of whom the consumer is willing to take advantage (the government or insurance companies, for example).
Jay Bohn
June 24, 2021
- It’s not always that simple. Depending on who “someone” is, you may not want to be seen to take advantage of the hospitality or you may even eat more frugally than if you were paying. [↩]