Wednesday, September 13, 2006

Consumer Surplus from Pets

Economist Tyler Cowen has a post on how much consumer surplus people get from pets -- very timely considering what we are studying right now.

He argues that people get a lot of consumer surplus from pets because they value the pets they have very highly, but many families do not want another. Therefore, the willingness to pay for the pet they already have is relative to the price they would have to pay for the next pet (which is determined by their willingness to pay for that next pet).

He goes on in the post to discuss endowment effects and the corresponding rise in living standards, but for this post, let's stick to his idea that people get a lot of consumer surplus out of their pets. Any thoughts in agreement or disagreement?

(Source: Marginal Revolution)


Anonymous said...

I do tend to agree with him that people get a lot of consumer surplus out of owning pets. This is assuming that the people can afford a pet. A very poor person would not have consumer surplus because he would not be willing to pay the original price to begin with. From my personal view i would be willing to pay a high price for a first pet. I mean it's like a best friend who cannot gossip...what could be better? I also think that the "willingness to pay" would be higher for the second dog than the advertised price as well, because people usually enjoy the first and want to have a second. There is consumer when it comes to pets.


Anonymous said...

I too agree that having a pet tends to yeild a high comsumer surplus, but the fact can't be overlooked that pets "cost" much more than the price you pay for one at a store. Someone may have $200 to buy a pet dog, but this doesn't nessecarily mean that they can afford to keep one. As Tyler Cowen stated the average american family spends $500 a year on pets. This again is only monetary spending. There is still a lot of time that needs to be spent with the animal. You have to play with it, feed it, and walk it. These costs weren't even mentioned in Cowen's analysis and I think that they cut down the amount of consumer surplus one recieves from purchasing a pet.

-james c

Anonymous said...

I agree with James in the fact that there are many other costs associated with owning a pet, the trips to the vet, walks, and the feeding. In order for people to afford such a high long term implicit price the consumer surplus must be very high. High enough so that the yearly cost of maintaining the pet over the amount of time you "plan" to have the pet is not enough to outweigh the surplus the consumer gets for owning the pet. Another pet just doubles the longterm cost to the consumer and only marginally increases their benefit from owning the pet. The high consumer surplus for pets is not all really surplus.

-Chip Burge

Anonymous said...

well at first i agreed right away that pets caused a higher consumer suprlus but then i started thinking about it...i mean yes, most people have a high willingness to pay for a first pet because it's an investment and an experiment. you gain a companion and something that keeps you company, basically like nick said, a best friend that can't talk behind your back. but let's say you have a bad experience with this pet. or the pet dies and you are upset so you don't want to buy another one. the willingness to pay obviously wouldn't be so hot. conversely, let's say you love your dog or cat and you want another pet to replace little fido, or give him a friend to play with. then the consumer surplus would increase even more because of the higher willingness for that second or third pet. but now consider the way the world is today. many pets are being negelected because people buy them and don't spend the proper time they need to play or excercise them. As james said, cowen fails to add that in his analysis...and he also forgets that with a, let's say $500, pet (investment) you also have to buy food every week, get shots, buy toys, and the routine checkup and health costs. A pet is a large investemnt. of time and money. The opportunity cost of having a pet is quite large for some people, hence another reason why the consumer surplus might be lacking for the pet market. I guess i neither agree or disagree with the statement that pets yield a large consumer plus;however, i do pose that it depends upon your experience with your pet and your not only willingness to pay, but your willingness to have another pet that occupies time and money, quite valuable in today's world


Anonymous said...

I also agree that people get a ton of consumer surplus out of their pets, but going into buying a pet a person would know how great the expense that pet would be. I think that the initial willingness to pay would be higher for the first pet than the second, because people might realize that it's not the type of dog you have necessarily, but jut the dog in general. By buying a second pet the person is showing just how great the consumer surplus was, because they were willing to spend all of that money again on another pet.


Anonymous said...

i believe that it depends on the person as to how much consumer surplus one would get out of owning a pet. the companionship can be negated by the financial loss in owning one. now, that price may be worth it to many people. Cowen's average is a little low in my opinion. in the case of my 2 dogs, in the past 4 years we have spent nearly 30 grand on orthopaedic surgery for one and a rare immune disorder for the other. food, time, and vet costs are huge with a pet. this can definitely be compared to having a child. there is a large consumer surplus with both...but they do have high prices. it is all relative. what is worth it for one person may not be worth it for another person.