Allan Sanderson: Consider the Options

Cross posted at TSE

Allan Sanderson tells his readers that TANSTAAFO (Olympics, not lunch).

Whether to support the Games themselves or merely the city's official bid, the latter carrying a price tag of $50 million to $100 million, one hears that "only private money" is underwriting those activities; no tax dollars will be spent. "Private" implicitly refers to donations from corporations and wealthy citizens. However, in jargon that students learn on the first day of Economics 101, virtually all expenditures or allocations have an opportunity cost, whether it be for a firm or family.

If Boeing, Sears, Motorola or McDonald's gives $1 million to help finance our Olympic bid, that is $1 million that does not get returned to stockholders as dividends or plowed back into the company for new projects and production. In addition, that is $1 million that does not, then, support an exhibition at the Field Museum, a new gallery at the Art Institute, or an after-school youth program.

When I sit down each December to write out checks to local, national and international charities and other non-profit organizations, I am implicitly choosing how to allocate, say, $2,000 among various groups and activities. The slice that goes to WTTW Ch. 11 doesn't go to the Chicago Coalition for the Homeless or the American Cancer Society—or to the University of Chicago. It's still just $1 million or $2,000 no matter how a corporation, a wealthy benefactor or I cut it.

There is no free lunch in this world and no free Olympic Games either.

Via Stephen Karlson.

Comments

[KipEsquire]

I'm not sure this reasoning is very robust.

If one assumes that a corporate sponsor of the Olympics have a constant expenditure function for advertising (hardly an outlandish assumption), then the only opportunity cost from sponsoring the Olympics is the next best alternative advertising, not the next best alternative use imaginable. There is no basis to assume that the money would, almost by definition, be returned to shareholders, invested in capital projects, deployed to research & development, etc., "but for" the Olympics.

My employer matches charitable donations by employees (up to a certain limit). My employer also makes (anti-Friedman?) direct donations to charity. I have no doubt whatsoever that the budgetary flowchart is that the firm allocates a certain amount to charitable donations ex ante, then reduces that amount to reflect employee matching (i.e., the total outlay is constant regardless of how much or how little employees apply for matching grants). But that is simply not the same as saying that, by matching employee donations, the firm is reducing capital expenditures, R&D or returns to shareholders

[Eric Parsons]

Granted, there is an opportunity cost for every decision. However, doesn't the fact that they are choosing to support the Olympic bid suggest that this decision provides them with the highest utility. Honestly, I fail to see the problem here.