Saturday, November 07, 2009

Rational choice?

I'm trained as an economist, and I understand the theory of comparative advantage, but I still have not figured out how the world's economic system makes it possible for this bottle of water to find its way from Fiji to Boston, a distance of about 8000 miles. It is not just the water, it is the plastic bottle, which is either manufactured somewhere and imported to Fiji, or the raw ingredients of which have to be imported to Fiji and made into a bottle there. Then, the bottle and the water both have to be shipped around the world to this market.

But what I really don't understand is why anyone would buy this water. (I acquired this bottle at a hotel in Boston, where I was attending a conference. Do they really think that we make choices about hotels based on which bottled water is served?)

A 24-pack of the Fiji 500 ml bottle weighs 27 pounds and costs $38.00 on this website. That's 12 liters for $38.00, or over $3 per liter.

A comparable pack of San Pelligrino from Italy costs $26.00, or a little over $2 per liter.

Poland Spring water from Maine costs $7.49 per pack, or less than $1 per liter.

Tap water in Boston costs $6.oo per 1000 gallons, which is roughly 3780 liters, for a price of .16 cent per liter.

Another part of economics is the theory of rational choice, which basically says that people consider the costs and benefits of their actions before making purchases or taking other economic steps.

Right.

12 comments:

Tim Windsor said...

I was an english major, so my math is definitely suspect, but isn't Boston's water about 1/6 of a cent per liter?

Tim Windsor said...

Nevermind. I was reading your price as 16 cents per liter or .16 per liter.

It was the 's' on the end of the cents that threw me, Your Honor.

Paul Levy said...

I fixed that, thanks.

Anonymous said...

Maybe the hotels should distribute gas instead of bottled water. I filled up my car yesterday and it was only about 70 cents per litre ($2.65 per gallon).

nasov said...

I started drinking it because Fiji finally had a source of income not tourism-based. That was before we all went green. I don't know what to do now, but I do worry about what my greenness does to people, too.

Paul Levy said...

There is a whole discussion about this on the Fiji website: http://blog.fijigreen.com/2009/08/fiji-water-responds-to-mother-jones-article/

But, what's wrong with tourism as an income source? It can be done in an environmentally sound way, e.g. Costa Rica. In fact, the Amalfi Coast in Italy lives off of tourism, too.

zach said...

I'm sure most people know that the store brand is usually manufactured by the name brand, yet they still buy the name brand. The trillion dollar advertising industry thrives on making sure our choices are anything but rational.

Btw, didn't you know that Fiji water is green because they can save shipping container space by using square bottles instead of round? They can fit 18% more water into the same size container! Ok, so I made that % up, but you get the point.

Marc said...

As a trained economist, you should know that there's no difference between a want and a need, and that demand is based on willingness to pay, which varies from person to person.

Lachlan Forrow, MD, FACP said...

How about lessons from this for those who say that we should just "trust the market" in health care?

Farmer Bob said...

Sales of these waters tap the eternal spring of mythology infused throughout American culture that "natural" is better and "exotic" better still. It is magical thinking. There is no rational reason to support the transportation of water halfway around the globe. It is a convenience or a vanity. My forebears would say it is a sin, especially here in New England where we are blessed with an abundance of water.

Purity should be the only standard. People used to take pride in their fine municipal water, and demand it be kept to high standards. Standards haven't fallen, but I think that gullibility and superstition have risen. We know, without question, how to deliver high quality from the tap. We allow ourselves to be exploited at $1 a bottle instead of demanding public water taps similar to the ubiquitous bubblers of my past.

Anonymous said...

Economics, like other social sciences, often fails to explain variation in behavior due to neglect of evolutionary theory. What is 'rational' about many choices is their association with health and status - which predict across species individual differences in reproductive success. Linked or not today to such payoffs, we still inhabit a hunter-gatherer body (and brain). Don't I look good with this bottle in my hand? I sure feel healthy!

Anonymous said...

anon 1245:

The question is, are you more attractive to a potential mate with this bottle in your hand (enhancement of reproductive success). I think it would drive me away - but I'm way past reproductive age, LOL!

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