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June 08, 2016

How Creating a Market Helped Food-Bank Charity Grow

Slate examines how a national antihunger charity employed a market-based solution to increase efficiency in its distribution of big food donations from producers and grocery stores to its network of food banks.

The article — adapted from a book on markets by Boston University behavioral-economics professor Ray Fisman and Tim Sullivan, editorial director of Harvard Business Review Press — recounts how America’s Second Harvest (now known as Feeding America) enlisted professors at the University of Chicago business school in the 2000s to help it optimize allocations.

At the time, Second Harvest had a top-down approach in which, for example, it would get a truckload of macaroni and cheese from Kraft and offer it a regional affiliate based on need, pickup location, and other criteria. The system treated different kinds of foods as being of equal value in helping feed the poor — noodles and potato chips, for instance — and sometimes left local food banks with items they did not need or could not store and stock.

A working group of academics and charity officials devised a market for affiliates to bid for such donations, using shares issued by Second Harvest. Even politically progressive skeptics among the food-bank leaders came to embrace the system, which Mr. Fisman and Mr. Sullivan say more effectively matched available supply to local demand and included a mechanism to redistribute spent shares among losing bidders. In a paper on the experiment, one of the professors involved said it boosted the charity’s annual supply of food donations by 50 million to 100 million pounds.