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Thursday, August 06, 2015

'Buying Locally'

Via the blog A Fine Theorem:

“Buying Locally,” G. J. Mailath, A. Postlewaite & L. Samuelson (2015): Arrangements where agents commit to buy only from selected vendors, even when there are more preferred products at better prices from other vendors, are common. Consider local currencies like “Ithaca Hours”, which can only be used at other participating stores and which are not generally convertible, or trading circles among co-ethnics even when trust or unobserved product quality is not important. The intuition people have for “buying locally” is to, in some sense, “keep the profits in the community”; that is, even if you don’t care at all about friendly local service or some other utility-enhancing aspect of the local store, you should still patronize it. The fruit vendor, should buy from the local bookstore even when her selection is subpar, and the book vendor should in turn patronize you even when fruits are cheaper at the supermarket.
At first blush, this seems odd to an economist. Why would people voluntarily buy something they don’t prefer? What Mailath and his coauthors show is that, actually, the noneconomist intuition is at least partially correct when individuals are both sellers and buyers. Here’s the idea. ....
One thing that isn’t explicit in the paper, perhaps because it is too trivial despite its importance, is how buy local arrangements affect welfare..., an intriguing possibility is that “buy local” arrangements may not harm social welfare at all, even if they are beneficial to in-group members. ...
[May 2015 working paper (RePEc IDEAS version)]

    Posted by on Thursday, August 6, 2015 at 12:29 PM in Academic Papers, Economics | Permalink  Comments (12)


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