Econ Sys: Allocation Types

Brute Force is another way of deciding who gets what.  We see this method used in the animal kingdom.  The biggest, strongest, and/or fastest animals get what they want.   This method motivates destructive competition because a person’s wealth is destroyed as people fight over it and leaves little motivation for anyone to produce new wealth. The weaker individuals do not get enough scarce resources to survive properly or do not receive enough resources to become more productive. The stronger thugs tend to become fat and lazy, wasting scarce resources or not using them efficiently.  Although it might benefit those who are strong, the destructive nature of this allocation process makes it unlikely they will benefit for long

Queuing (lining up) is another method for deciding who gets what.  This method is based on the principle of first come/first served.  This might be the preferred method of selling concert tickets, but this method has some inherent flaws.  First, if this  were the main way of allocating all our scarce resources, too much of our time would be wasted standing in lines, and not enough time would be devoted to production. This method involves having people compete by waiting in line, with the competition favoring those who wait the longest. It may also provide motivation for some people to start cutting in line (which is a violation of the rule), resulting in fighting or other turmoil. Waiting in line fails to get people working together to produce more of a valued product that people are wanting to purchase. Also, when scarce resources get really limited, the purchase price rises, sometimes causing a black or underground market to develop.  We have seen this happen at sporting events and concerts when scalpers resell tickets for many times their original value. 

Random Selection is when everyone has an equal chance.  Allocation through random selection can be accomplished by drawing names out of a hat, by drawing straws, or by using more sophisticated methods generated by computers and random numbers.  On the surface, this sounds like a good method for allocating scarce resources , and in in some situations, it is.  However, it is not a good method in all situations.  For example, if jobs were allocated by random selection, some of us might get the perfect job, one that we may never have gotten using any other method.  But many people will receive jobs they are unqualified for or simply do not like.  They will be like round pegs in square holes. Overall, production will suffer. 

Equal Shares is when each person receives the same amount.  Occasionally, this may be the best method for allocating scarce resources.  For example, if you and your friend only have 10 minutes left to play an individual video game, each of you could play for five minutes.  On a larger scale, however, this method might not be as fair, and many times is is very wasteful.  For example, if everyone received an equal amount of food, then a person weighing 100 pounds may have too much food and some will be wasted, and a person weighing 200 pounds may not have enough food and will get sick.  The problem is compounded (gets worse) by some people disliking some foods and others being allergic to some foods. 

Planned systems exist in mostly socialist/communist countries.  Government planners decide what and how much is to be produced and distributed by whom, when, and to whom. Government distribution is typically justified as a way of making sure products go to those who need or most deserve them instead of to those best able to compete. However, the rules of government distribution don't entirely eliminate competition; they just change the type of competition that takes place. For example, people may compete for government distribution by contributing money to political campaigns or hiring lawyers and lobbyists to influence the decisions of politicians who set the rules. 

Producers generally have little choice about the goods and services they will produce. Their main task is to meet their assigned production quotas. Prices are set by government planners and do not change according to supply and demand.  

In some situations, government planning works fairly well, as long as the economy is simple and the variety of goods and services desired is small. Also, planned systems might even be necessary under certain conditions, during wartime, for example.  However, the government method can lead to wasting scarce resources on those that don't use them efficiently causing a weak economy.