Voluntary work - Part I, Opportunity cost
This is the first part in a series of posts about volunteers and the constraints underlying volunteer management.
Economists think differently. Let’s say you buy a bottle of water at a local store for $1. Let’s also say that for the sake of argument tax is already included so the financial cost of this bottle to you is exactly one dollar. To most people, that’s all there’s too it. You have a bottle of water more in your hand and one dollar less in your wallet. The shop keeper has one bottle less on his shelves and one dollar more in his cash drawer. End of story. But like I said, Economists think differently. Because what this view ignores is the opportunity cost involved in this transaction.
What’s opportunity cost? It’s the cost you incur by not doing the next best thing. Because every single moment in time only occurs once, each moment represents a unique opportunity to select from a multitude of choices. In our example, instead of buying a bottle of water, you could have bought something else, or called your friend Sue on the phone, or watched TV, or done the laundry. But when you decided to buy a bottle of water, you also decided against doing all the other things you could have been doing in that moment. And those “benefits forgone” are a cost to you.
Obviously, the exact size of your opportunity cost depends on your situation. Let’s say all you have is a dollar in your wallet and that dollar also has to pay for your bus ride home this evening. Now your opportunity cost has just skyrocketed because by choosing to use up your last dollar to buy that bottle of water, you also chose against taking the bus home. Which means you’ll have to walk. 20 miles. In the heat. Thank God you have some water on you. And because you don’t walk very fast (it’s hot after all), you’re going to miss your favorite TV show. Bummer.
Opportunity costs also depend on the person incurring them because they reflect the options you didn’t choose. The set of options you have may not be the same options I have. If you don’t have a phone, you couldn’t call your friend Sue so you wouldn’t incur that opportunity cost either. If you had a phone though, things would look differently. The same is true for the jobs you did or didn’t take (different qualifications), the movies you did or did not see (different tastes), the things you did or did not buy (different means).
So why does any of this matter? It matters to Economists because they believe that efficiency is a good thing and that people behave rationally. This includes always making the choice that offers the best balance of costs and benefits. Costs here include opportunity cost while benefits don’t have to be material or financial in nature. Being happy or feeling good about oneself are benefits too, even though not easily quantifiable ones. From the Economist’s point of view, people are constantly trying to minimize their costs and maximize their benefits. When you buy that bottle of water, Economists implicitly assume that you (consciously or subconsciously) calculated your costs and benefits and made the rational choice. If you didn’t, meaning you just randomly went into the store, picked up the bottle and handed over a $1 bill, Economists would assume you’ve lost your mind. Or that you’re lying about you acting totally random.
While opportunity costs have a significance in the commercial world, they have an even greather significance when it comes to volunteer work. When benefits are high, costs can be high too, whether of the material or “virtual” opportunity variety. That’s why people choose to be employed in the first place - the opportunity cost of working, meaning all the things we could do if we weren’t working, is offset by the benefits we get from getting paid (plus benefits as the case may be). When it comes to volunteer work, however, the benefits are of a different kind and often considerably less significant while opportunity costs can be very high. Doing voluntary work means not earning money, means not calling your friend Sue on the phone, means missing that TV show, means not doing the laundry. What impact all that has, we’ll get into next time.
