Spending someone else’s money

Money can be spent in four different ways with very different incentive as a result. According to the ecnomist Milton Friedmans book Free To Choose they can be divided into these four categories:

Category I: You are spending your own money on your self.
Category II: You are spending your money on someone else.
Category III: You are spending someone else’s money on your self.
Category IV: You are spending someone else’s money on someone else.

The different situations all result in different incentives on how the money should be used. With categories III and IV the incentive to economize with the money is minimal. A lunch on somebody elses account (III) have no incentive to keep down the costs, only to get as much value for the money as possible. And with category IV there is not even an incentive to get your moneys worth. Categories III and IV are totally dependent on people being responsible, well informed and nice.

A recent event of a typical abused Categoriy III spending is the Swedish Agency for Economic and Regional Growth that since its start 2009 has spent millions on wine tastings, hotel stays and fine dining, all on the account of the tax payers. The only things keeping down expenses, apart from the occasional tug in the ear from the government and media, are how much tax money they can squeeze out of the government to finance their needs and of the good intentions of people to act responsibly with all that money.

It’s perhaps not strange that all agencies and institutions tend to need more and more money every year…