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The Economics Of Spare Change…

May 20th, 2009 · 8 Comments
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Hm…I suppose that title should read “The Economics Of Spare Change“, as I am referring to the newspaper and not to the stuff you find in your couch cushions. Anyhoo…

For those of you that don’t know, which I would imagine is most of you, Spare Change is, according to Wikipedia, “a street newspaper published in Cambridge, Massachusetts through the efforts of the Homeless Empowerment Project, a grassroots organization created to help end homelessness.” The general deal is that homeless people (or unemployed but not quite homeless people, as I learned today) buy the newspapers from the organization for 25 cents and then sell them for a dollar, and thus get to keep 75 cents in profit.

So I am thinking about this because my dog and I were kicked out of my apartment this morning by the fire alarm. (I’d like to see you try to locate a 6 pound creature who is afraid of loud noises and successfully get him down the stairs while all this racket is going on. In case you are curious, which you aren’t, one of the vacuum cleaners that the maintenance people were using caught on fire.) Clearly the correct answer in this situation is to walk the dog over to Dunkin Donuts to get a coffee, since the alternative is to sit in front of the building like an idiot waiting for the firemen to let us back into the building. Seeing as how I’ve got time to kill, the further correct answer is to strike up a conversation with the Spare Change vendor outside of the Dunkin Donuts. Some highlights:

  • He said that he sells about 35-40 papers per day, which translates into about $26-$30 per day in profit. Not stellar, but I also didn’t ask how many hours he worked. He mentioned that he has income from Social Security, so presumably the Spare Change gig just supplements that.
  • The setup where he buys the papers and then sells them at a markup, with no opportunity to return the unsold papers, perfectly resembles the standard newsboy problem that is found in economics and operations research. If you click on that there link, you will see that the math behind it is kind of involved (mainly due to the fact that it involves a cumulative density function). It’s interesting to think that in some way the newspaper guy is stumbling upon the solution to the newsboy problem by trial and error.
  • The papers are purchased every two weeks rather than every day. That represents an up front payment of roughly $140, which seems like a lot for a (presumably) cash constrained person. I am now curious as to whether the employees can go back and purchase additional papers throughout the two-week period if they run out, since otherwise there is no way to capitalize on unexpected high demand. This could also help people that are strapped for cash, since it presents a tradeoff between going and picking up the papers more often versus paying more money up front.
  • The newspaper vendors are pretty good at anticipating demand and moving accordingly. For example, this particular fellow said he spend his mornings outside Dunkin Donuts, since that is when people were getting coffee and such, and then moves over to a CVS in Brighton around noon or so, when the coffee demand dries up.
  • This particular individual is not actually homeless (thank goodness for him), but rather pays $600 per month to rent a room in a condo building in Roxbury. (For those of you that are not familiar, Roxbury is not really the nicest/safest place in Boston to be.) He explained to me that all of these nice condos were built and are now unsold because of the downturn in the economy, and therefore the developers/owners/whoever are renting out individual rooms to at least recoup some of the cost. I told him $600 seemed steep for Roxbury, and he explained that he had granite countertops and such. Hm…the Spare Change guy officially has a nicer apartment than I do.
  • As to the above, it seems like landlords are milking people that probably can’t afford to put up first last and security by charging them more in rent than they would otherwise. I suppose this is a fair tradeoff to a degree, but still seems a little opportunistic, since I still contend that $600 to live across the hall from a crack dealer (his words, not mine) is too much.
  • Robert (I am pretty sure that that is what his nametag said) mentioned that there were a lot of problems with property being destroyed in his neighborhood…I always thought that this was because people were trying to steal stuff (which makes sense to a degree), but it turns out that some people throw bricks at cars just because they are angry that someone else has a car and they don’t. I plan on using this as an example the next time that someone challenges the notion that people place a reasonably high value on fairness and are willing to take action to preserve their notions of equity. (Well, I will use it as the second example, with the first being the fact that the audience often sabotages the contestants on the Russian version of Who Wants To Be A Millionaire- the interpretation of this behavior is that the audience is pissed that some random person gets the opportunity to get rich and then needs the audience’s help, which would imply that they don’t deserve the opportunity they were given.)
  • I asked where the articles for Spare Change come from, and he said that homeless people were paid $50 for articles that get published. I read some of the articles and they aren’t bad. I am also strangely jealous that they get paid for their writing and I don’t. 🙂 (For the record, I opened the paper to a random article and the word “labyrinthine” jumped out at me. Oh Cambridge…I am now pretty sure that even the homeless people here are smarter than I am. Love it. There is also an article entitled “Bailout for the Homeless?” that is pretty interesting.)

I am torn about what to think about this setup. On one hand, the program is great, since it gives disadvantaged people an opportunity to actually sell something rather than just ask for money. (I must say, as an economist, that the best way to get something is to ask for it, so I am perfectly fine with the idea of panhandling. However, I am also fine with the idea of saying no when I am not feeling generous.) On the other hand, I am guessing that most people who buy the paper don’t actually read it. If that is the case, wouldn’t it be more efficient to partner with the Boston Globe or something to sell something that people would be more likely to read (and thus more likely to buy)? I get that the Globe is having its own issues nowadays, so that might not be the best example, but you get the idea. I remember from when I was younger in Florida that people would buy the Sun Sentinel or Miami Herald every morning and go sell them at traffic intersections and such. Even if they had to sell an abbreviated version of the paper to minimize cost, it still seems like it could help with demand.

I kind of want to collect data to see if people actually read the Spare Change paper. Since the paper comes out every two weeks, and the vendors typically go to the same locations every day (and thus encounter at least some of the same people every day), a researcher could test the hypothesis by looking at demand patterns- if people are buying the paper to read it, demand should be higher when a new issue comes out and then trail off over the course of the two week period. If sales are constant over time, this would suggest that people are buying the paper as a favor. If the latter is indeed the case, there is a Pareto improvement to be had in giving these guys better merch to sell, since they are clearly good at selling.

1350 words on homeless dudes selling newspapers…this is apparently what happens when I am forced out of my apartment into the land of the large iced coffee.

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8 responses so far ↓

  • 1 Jeff // May 20, 2009 at 3:17 pm

    I believe the street-side newsies for the Globe/Herald are unionized, and would blow multiple gaskets if the disadvantaged got a better deal than they did to sell the same thing.

    However, as a person who never buys papers for the current news (only the features) , I would be fine paying less for a day-old paper from a homeless person. The Globe gets rid of old issues, newsies don’t lose their bread-and-butter, homeless dudes get their 75 cents, I get the day-old article about polar bears or whatever. EVERYONE WINS (except polar bears).

  • 2 Calixto // May 20, 2009 at 6:34 pm

    Here we don’t have the guys buying the Sun Sentinel and Miami Herald to sell at the intersections any more, at least not that I have seen recently. I do recall that myself, especially when returning from clubs in the wee hours of the morning…

    Anyway, we have an exact parallel to the Spare Change in the Homeless Voice. You have homeless folks in blaze orange vests selling copies of this newspaper at the intersections.

    (They’re competing with pan handlers, Vet program donation collectors, weird religious charity guys in bright white suits with red trim, and flower and shrimp salesmen. [Who’d buy shrimp that’s been out in the sun all day, even if its in a cooler with ice? Hello food poisoning! Yet there’s a demand for it. go figure.])

  • 3 Calixto // May 20, 2009 at 6:48 pm

    Econgirl,
    The seventh bullet point about the destruction of cars by the car-less brings up the

    http://en.wikipedia.org/wiki/Inequity_aversion

    Does it not?

  • 4 Firewoman // May 20, 2009 at 11:11 pm

    “firefighters” please instead of “firemen”!

    sorry to be off topic. I do enjoy your blog.

    and you are right, I bought and did not read past the first page of Spare Change.

  • 5 econgirl // May 20, 2009 at 11:26 pm

    Firefighters. I respectfully stand corrected. In fairness, I am pretty sure that all of the people who showed up at my building this morning were male.

  • 6 Charlie // May 27, 2009 at 11:21 pm

    I am an econ grad student at Berkeley. I was walking down Telegraph Avenue (you’d understand if you’ve visited) and one of the homeless gangs (they reallocate and reassemble on a nightly basis, so far as I can tell) shouted to me. One guy asked me how to spell “cirrhosis,” seemingly attempting to settle a debate amongst the group. I didn’t know whether the choice of word was funny or sad.

    I started, “uhh, s-i-r. . .” “This place is filled with idiots!” came the reply. I, a native English speaker with an Ivy League degree and slot in a top doctoral program, got served by a homeless guy.

    So, yeah, I totally get your “labyrinthine” reaction.

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