Economics and the mid-life crisis have much in common: Both dwell on foregone opportunities

C'est la vie; c'est la guerre; c'est la pomme de terre . . . . . . . . . . . . . email: jpalmer at uwo dot ca

. . . . . . . . . . .Richard Posner should be awarded the next Nobel Prize in Economics . . . . . . . . . . . .

Friday, December 17, 2004

The Economics of the Haj, Part II

[again, with thanks to JC]

The Islamic Development Bank [IDB] has raised the price of a sacrificial sheep coupon for the Haj from SR375 to SR450. Their monopoly in the sale of these coupons was created in 1998, in part, to address problems of the commons:

"Before the project, hundreds of thousands of carcasses were thrown away. Bulldozers buried them in huge pits," [Dr. Ali] said. "The government had to spend some SR20 million to get rid of carcasses littering the holy places. The project has put an end to all these problems," he added.

This year more than 18,000 butchers will be employed along with 700 veterinarians and 600 Shariah students. The animals will be examined at all stages until they are skinned and refrigerated.

By requiring coupons, the IDB creates identifiable and tradeable property rights, which should lead to a more efficient use of scarce resources (see Coase). There will be fewer negative externalities, the meat will be given to the poor, and the remaining parts will be rendered. For the entire story, click here. The story does not shed much light, though, on how the prices of these sheep coupons are determined by the authorities:

Dr. Ahmad Ali, president of the IDB, emphasized that the bank made every effort to keep the price down but that the increase reflected market conditions. As for camels, the market is open and pilgrims can negotiate a price including all services from slaughter to transport.
If sheep cause a tragedy of the commons type problem but camels don't, that says quite a bit about the relative values of the two types of animals.

So why do you suppose the IDB raised the price of the sacrificial sheep coupons?

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