Despite the apparent danger that this blog is slowly degrading into a "lonely island in the pacific"-blog, here is yet another story. I have to cite Russell Roberts on econtalk, where I first heard the following story, which I find quite interesting (I think I remember him mentioning it was on one of his exams while at U Chicago):
Here we are again, back on our decent island in the sun. It is completely isolated from the rest of the world. Imagine one day there arrives a visitor. He comes to the island and consumes beach, sun and accomodation in the hut of the only inhabitant who is willing to accomodate a stranger. The visitor enjoys lying on the beach and painting pictures. He asks his landlord if he would agree to trade accomodation for his recently drawn picture, and the landlord, after carefully examining the work or art, says yes.
A year later, the visitor comes back. He draws another picture for the landlord and is also able to trade a second picture for some artesanal souvenirs with one of the inhabitants. There is also a picture in exchange for a dinner at the beach, carefully prepared by a couple who enjoys cooking for others.
Now imagine that the visitor comes back every year, constantly producing pictures and trading them for goods and services. After a while the population of the island picks up on the habit and starts using the pictures as a means for exchange.
Question: Are the vacations of the visitor for free? If not, who is paying for them? What are the welfare implications in the long run?
Here we are again, back on our decent island in the sun. It is completely isolated from the rest of the world. Imagine one day there arrives a visitor. He comes to the island and consumes beach, sun and accomodation in the hut of the only inhabitant who is willing to accomodate a stranger. The visitor enjoys lying on the beach and painting pictures. He asks his landlord if he would agree to trade accomodation for his recently drawn picture, and the landlord, after carefully examining the work or art, says yes.
A year later, the visitor comes back. He draws another picture for the landlord and is also able to trade a second picture for some artesanal souvenirs with one of the inhabitants. There is also a picture in exchange for a dinner at the beach, carefully prepared by a couple who enjoys cooking for others.
Now imagine that the visitor comes back every year, constantly producing pictures and trading them for goods and services. After a while the population of the island picks up on the habit and starts using the pictures as a means for exchange.
Question: Are the vacations of the visitor for free? If not, who is paying for them? What are the welfare implications in the long run?
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