In looking through William Stanley Jevons' Principles of Economics, mostly a collection of unpublished fragments, Jevons concluded a section on negative value with a fascinating story from Herodotus on auctions in the Babylonian marriage market. The story speaks for itself and requires no commentary on my part.
137: "According to Herodotus the Babylonians managed to find husbands for all their young women. They collected together whatever maidens might be of marriageable years and sold them by auction, beginning with those esteemed the most beautiful. They gradually proceeded downwards in the scale of comeliness until some damsel equidistant between beauty and plainness had to be given away gratis. Then the plain and the ugly and the deformed were brought out by degrees, and the bidding went on; but in the other way, the premiums obtained for beauty being spent as dowries for the less favoured. All the women found husbands, and all the husbands found what they desired."
michael,
ReplyDeleteThanks for providing this interesting example (at least to me). I have for some time had on my list of things to do to write a paper about negative prices. Of course standard economic theory dismisses such things as impossible. However, I have long been aware of some examples, most of them sort of odd, such as pieces of real estate that have some kind of environmental cleanup demand on them that costs a lot.
Other examples often involve simply defining the "paying to get rid of something" as a "different market." So, if we do not have enough water, well we pay for it, but if we have a flooded basement, we pay for somebody to come pump it out. Same good, water, but different circumstances, although dams often involve doing both (irrigation and flood control).
Anyway, it is cool to see an example involving not only a single good but in the same market.
The retail suto sales market for new cars is not too different. The dealer sells what they can at the highest possible price during the month, or any fixed period, knowing full well that there will be "left over" units that will require steep reductions even below the real cost of the unit. The factory distributors often offer programs which are dependent of units sold during a fixed period. In effect if the dealer reaches a stated numbers of sold units the store will then receive back from the distributor X amount of dollars for all the units sold during that period. Near to the end of the period of the sale a dealer needs one or more units to reach the goal it is very likely that those last units will be sold under cost. There may be a loss of several hundred dollars per unit which is acceptable because the "earn back" will be several hundred dollars per vehicle going back to the first sold during the period.
ReplyDeletejack,
ReplyDeleteBut, have you ever seen an auto dealer paying people to take cars off his lot? Selling below cost is not at all uncommon, which involves negative profit on a sale, often done to get greater profits from other sales. What is being discussed here are negative prices, paying someone to take that daughter (or car, or environmentally dirty property, or excess water) off one's hands.
Well, Herodotus wasn't known as "Father of Lies", in addition to "Father of History", for nothing, so it's a good chance he made this particular bit up. Maybe he thought that's how it should be done. Still, it's an interesting set up.
ReplyDeleteBack in grad school, I came across this and wondered how you'd set this kind of auction up formally and analyze it. In particular, whether it was really true that "efficiency" - "All the women found husbands, and all the husbands found what they desired" + some kind of redistribution to the poor - really was guaranteed to obtain. Additionally, it seems like Herodotus just asserts that this was some kind of revenue neutral auction - "the premiums obtained for beauty being spent as dowries for the less favoured" - although this isn't a big deal from modelling point of view (just assume the remainder gets redistributed/funded by lump sum transfers).
Finally, in these kind of auctions, I think it's an interesting question if the order in which the goods (brides) are auctioned off - this would introduce an extra wrinkle of strategic behavior as it might pay to wait and even pass up the top beauties, since in the successive biddings it's possible that other villagers' preferences get revealed (sort of like a version of the two armed bandit problem)- this I think would be the difficult part of setting up this kind of auction as a formal model.
Anyway, glad someone else noticed this interesting tid bit in Herodotus, and I didn't even know that Jevons commented on it. Thanks.
notsneaky
With all the tons of work done on auction markets, I would think that modeling this one might make an interesting dissertation.
ReplyDeleteWith unmarried teenage mothers in the news today, perhaps the family values people might even set up such an auction in some church someplace.