Milton Friedman told us there were four ways to spend money:
| 1. Spend your money on yourself | 2. Spend your money on someone else |
| 3. Spend someone else’s money on yourself | 4. Spend someone else’s money on somebody else |
It seems reasonable to assume that the first way to spend money will be the most efficient — the spender considers his own budget and his own interests in the choosing of a market basket of goods and services. The second kind of spending is less efficient — this is why economists might say that Christmas-gift-giving is inefficient — because the recipient of a good or service might rather spend the money on something she values more highly. The gift-giver necessarily attempts to please the recipient, and succeeds to the degree that he has correctly mentally modeled the recipient. The third kind differs from the first because the spender doesn’t necessarily consider the difficulty of obtaining the money in the first place and therefore doesn’t consider the “replacement” cost of the money (which serves as a sort of intertemporal budget line. The fourth kind combines the paths of inefficiency of both the second and third ways — both in the cost and the benefit the spender is removed from the
Clearly, most bureaucratic actors within public colleges are operating in the third and fourth categories. We question how well motivated the spenders of college funds are to make a correct decision about what projects should be green-lighted. Even those persons with impeccable ethics will inherently be less careful in decisions that do not involve their own money.
/KDR