Friday, 5 October 2012

Crumbly Cookie Problems

Economists usually frame equity-efficiency issues in terms of the "leaky bucket". Sesame Street suggests that this could better be modelled as the crumbly cookie problem.

Recall that in the leaky bucket problem, you're presented the following situation. A rich person is on the left. A poor person is on the right. You can scoop up some of the rich person's stuff in a bucket, walk across a bridge, and pour the stuff out for the poor person. But, your bucket is leaky and some of the stuff is lost as you cross the bridge - pure waste. How leaky does the bucket have to be before you say it's no longer worth attempting the transfer? There's no "right" answer to the question; it's more of a value judgment about how bad waste is relative to income differences.

In the little clip below, Ernie and Cookie Monster have one cookie between them. When Ernie has it, Cookie Monster is sad. When Cookie Monster has it, Ernie is sad. They try to share it. I take it as a cautionary tale. But I would, wouldn't I?

I don't think the deadweight costs of redistributive taxation are really 100% [best estimates have it more around 30%]. But I do like the example. How crumbly does the cookie need to be before we either say that Ernie should keep it or that it should be given to the cookie utility monster?*

Update: And here Cookie Monster takes on the problems of political economy. In the state of nature, we can find no neutral arbiter of disputes and none of us can trust ourselves to be a fair judge when our own interests are at stake. And so we give up the power of judicial arbitration to the State. Unfortunately, the deal often isn't as great as we'd have hoped. Cookie Monster here warns that Locke was too optimistic: a Panglossean best-case thinker.


* I'm pretty sure that I've seen Cookie Monster hit satiation before, so he can't really be a utility monster.


  1. In Thailand the leaky bucket sees about one third of all Government expenditure, disappear to 'tea money' that is politicians, officials, influential people, bribes and other corruption, yes one third. There is a new rice pledging scheme to pay farmers well over the retail value of rice. Supposedly to benefit poor farmer. In this case Thailand has made an exception, it is estimated that two thirds, rather then the normal one third of the scheme is taken out by wealthy corrupt land owners and mill owners and politicians. One of the neatest scams is to import high quality rice from Vietnam at a low price add it to the 20 million tons of rice is stores and collect the pledge money,.
    This is a bucket with a serious hole in it
    The Government here is partly ruled by a financial criminal in exile name Thaksin.

  2. Romney's vendetta against Big Bird is surprising given what his colleagues Ernie and Cookie Monster seem to be teaching about costs of redistribution...