Economics and efficiency

 

Economics is built around the idea of efficiency.  Whether this is static efficiency, in the form of allocative of productive efficiency, or dynamic efficiency we are always looking for ways of delivering efficiency in economic activity.  Indeed, one of the first things we learn is that there are scarce resources and infinite wants and so we should use those scarce resources as carefully as possible.  This suggests that an efficient economic system would avoid waste.  However, the problem of food waste is well documented and examples can be found in recent newspaper articles without looking too carefully.  UK households discard about 7 million tonnes of food and drink each year, over half of which could have been safely consumed.  It is around 25% of all food purchased by households and the total cost is around £17bn per year.  To put that into perspective the UK government plans to spend around £18.6bn on transport in the UK in the fiscal year 2015-16.

The question is, how can we explain food waste in an economic context?  Why are rational economic actors, in the form of households, firms and the government, using scarce resources to buy food which they then discard and gain no utility from?  This spending on food must have an opportunity cost.  We might also ask ourselves if there is any way that the economic system can prevent this food going to waste, even if the original purchasers decide not to use it.  One idea can be found by following this link:

http://www.independent.co.uk/news/business/news/sainsbury-s-food-waste-campaign-real-junk-food-project-a7087826.html

This seems to be a utility maximising project in that it enables some households within the economy to gain utility from resources which would otherwise provide no utility to society as they would be discarded.  It is efficient to use the resources this way because they increase total utility.

The questions we should consider as a result of even a cursory examination of the topic of food waste are:

  1. Why are economic actors, usually households, acting irrationally by spending money on food which will provide no utility because it will be thrown away?
  2. Why is the economic system destroying scarce goods, in this case food, which could be consumed and provide utility to some groups within the economy?
  3. Why are profit maximising firms, usually supermarkets, operating in a way which increases their costs by carrying stocks of food which they will not sell and must destroy, thus reducing their profits?
  4. Why has this market failure continued for so long with so little research amongst economists? Bear in mind that reliable estimates suggest that UK households are spending nearly as much on food which is then thrown away as the UK government is spending this financial year on transport.

 

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