The imperfect market for passports

by Russ Roberts on March 23, 2007

in Markets in Everything, Prices

Plenty of fodder here (HT: Doug Ransom) for an Econ 101 class discussion or exam. Because of a new requirement that Canadians visiting the US need a passport, there’s been an increase in demand to get a passport and the Canadian bureaucracy hasn’t responded as briskly as they might. The result is excess demand for a passport on short notice and that means price gets paid in other

Pat has a layer of cardboard beneath him, a wool blanket on top of
him, two paperbacks found in a dumpster in his hand and the promise of
$80 when he wakes up.

     “I’m a lucky guy,” the 40-year-old homeless man said, from one of the most coveted spots in town these days.

Pat was first in line at the Fort Street passport office lineup
yesterday. He claimed his spot at 1 p.m. the afternoon before, and
slept out on the sidewalk with about 15 other homeless people who have
put themselves to work holding space in line for those a little more
fortunate.

“I’m taking advantage of an opening in the marketplace,” Pat said.
“Capitalism is what our whole society is based on. It’s the foundation
of what we are and what we’ve become.”

If people don’t want
to wait the hours in line that it’s taking to get passports processed,
Pat and others are willing to sleep on the street — as many of them
would be anyway — and get paid for it.

One of the nice lessons here is that even though the homeless are willing to sleep on the street for nothing, the market is rewarding them. I’ll leave as a homework question (use the comments if you’d like) why the market works this way. Another lesson comes from Pat’s analysis:

"I’m taking advantage of an opening in the marketplace,” Pat said.
“Capitalism is what our whole society is based on…"

The first sentence is true. The second? Let’s just say the decision of how many clerks to put int he passport office isn’t exactly capitalism in action.

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{ 12 comments }

M. Hodak March 23, 2007 at 4:58 pm

The second phrase may not be strictly accurate, but it has a naive charm. I hear it as an aspirational view of society.

The irony is that this view, aspirationally speaking, is the polar opposite of that of the limousine liberals who would look down on this person, preferring to demean him as an object of charity rather than allow him to be "exploited" as a (willing) capitalist tool.

True_Liberal March 23, 2007 at 9:11 pm

Let's see now: Large increase in demand, fixed supply – I think there's something in my old E text about this…

Colin Keesee March 23, 2007 at 9:30 pm

I am an undergraduate econ student so I ought to be able to answer the question of why are homeless people are paid to sleep on the street.

I suppose three fundamentals are at work here: Comparative Advantage, Gains from Trade and Opportunity Cost.

The homeless person is giving up less by sleeping in front of the passport office than the person who is paying the homeless person.

The payer is presumably someone who can make more much than $80 during the course of a day.

Essentially one party, the worker, specializes in working and the other, the homeless person, specializes in waiting.

The worker is better off because he gets his passport quickly and did not have to give up time and forgo income and the homeless person, made more than he could have made doing anything else.

Therefore, this transaction, of paying a homeless person to sleep in a certain spot, occurs because both parties are better off as result.

raj March 23, 2007 at 10:44 pm

This sort of thing has been going on for ages in India, but for visas instead of passports.

Interestingly, the homeless people there auction off their place to the highest bidder.

There is no wait in the Canadian embassy though.

True_Liberal March 23, 2007 at 10:49 pm

Of course, governments (particularly leftish ones like Canada) will eventually take action to stop such voluntary contracts under the guise of "public good" or such nonsense.

Brad Warbiany March 24, 2007 at 12:49 pm

What's sad about the passport thing isn't that the Canadian government isn't up to speed with properly staffing their passport office. After all, it wasn't their policy which requires passports to come to the US.

What's worse is that our own government didn't staff the passport offices well enough to handle the increased demand our own policies created. So we're left with wait times for a passport that have nearly doubled.

Brad Hutchings March 24, 2007 at 6:40 pm

Colin gets an "A". It's not just water and fish though. Homeless people are probably a heck of a lot better at sitting in line on the street than people who need the passports. Try visiting Circuit City at 3 am the day after Thanksgiving to see how bad relatively rich people are at waiting in line.

Ray G March 24, 2007 at 7:43 pm

What? No one has complained yet about the exploitation of the homeless? Where's spencer or g'dawg at?

Anyway, if I visit Circuit City at 3 am the day after T'giving, we're going to find out bad I am at tolerating foolishness, and that might be ugly so I'll sleep in next year. :)

Carl Shulman March 25, 2007 at 3:28 am

Speaking as a Canadian, the passport office isn't completely hopeless: for years they have charged different fees for different turnaround times ($100+ for 24 hour service), improving allocative efficiency.

Of course, you still have to queue to place the order, whether for 24 hour or 10 day turnarounds, hence this story.

john March 25, 2007 at 6:47 am

Although I love Pat's optimism, I think the last part of his statement is also quite telling.

"It’s the foundation of what we are and what we’ve become."

Is Capitalism what put Pat on the street? If so, he doesn't seem to mind.

Bill Conerly March 25, 2007 at 7:18 pm

Isn't it time for someone to point out that no passport should be required to travel? I should have a right to go anywhere, so long as the owner of the underlying ground grants permission.

BlacquesJacquesShellacques March 28, 2007 at 5:24 pm

"…leftish ones like Canada"

Um, guys, it was the US that insisted on a useless and bureaucratic requirement for a passport for Canadians. The US used to accept a Canadian Driver's License. The Canadian passport office lets Canadians use a driver's license as ID.

Net result: Fewer Canadians coming to the USA to spend money. American border towns and bars screaming bloody murder.

Out west where I live Alberta Canada is oil rich and a 3.5 million person economic powerhouse. Montana has less than 1 million and a so-so economy.

How many Montana border merchants and barkeeps are happy with the new passport requirements? Somewhere between 0 and zero.

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