Tauranga's beggar ban, and the economics of panhandling

Tauranga City Council has just passed a ban on begging. The New Zealand Herald reports:

The council voted 6-5 to ban begging and rough sleeping within five metres of the public entrances to retail or hospitality premises in the Tauranga City, Greerton and Mount Maunganui CBDs.

The bans will become law on April 1, 2019, as part of the council's revised Street Use and Public Places Bylaw...

[Councillor Terry] Molloy said the measures of success would be a marked reduction in beggars and rough sleepers in the targeted areas, the community feeling a higher level of comfort with their security in those areas, happier retailers and no proof the problem had moved elsewhere.

Becker's rational model of crime applies here. Panhandlers (or beggars) weigh up the costs and benefits of panhandling when they decide when (and where) to panhandle. If you increase the costs of panhandling (for example, by penalising or punishing panhandlers), you can expect there to be less of it (at least, in the areas where the penalties are being enforced). How much less? I'll get to that in a moment.

You may doubt that panhandlers are rational decision-makers. However, a new paper by Peter Leeson and August Hardy (both George Mason University) shows that panhandlers do act in rational ways. Using data from 258 panhandlers, observed on 242 trips to Washington D.C. Metrorail stations, Leeson and Hardy find that:

Panhandlers solicit more actively when they have more human capital, when passersby are more responsive to solicitation, and when passersby are more numerous. Panhandlers solicit less actively when they encounter more panhandling competition. Female panhandlers also solicit less actively...

Panhandlers are attracted to Metro stations where passersby are more responsive to solicitation and to stations where passersby are more numerous. Panhandlers are also attracted to Metro stations that are near a homeless shuttle-stop and are more numerous at stations that are near a homeless service.

In other words, if the benefits of panhandling increase (because passersby are more responsive, or more numerous), there will be more panhandling. If the costs of panhandling are higher (because the Metro station is further to travel to), there will be less panhandling. This is exactly what you would expect from rational panhandlers. As Leeson and Hardy note:

...panhandlers behave as homo economicus would behave if homo economicus were a street person who solicited donations from passersby in public spaces.

Interestingly, Leeson and Hardy also explain in economic terms how panhandling works:

...panhandler solicitation is generally regarded as a nuisance; it threatens to create “psychological discomfort…in pedestrians,” such as guilt, awkwardness, shame, even fear (Ellickson 1996: 1181; Skogan 1990; Burns 1992).5 Third, pedestrians are willing to pay a modest price to avoid this discomfort...

By threatening more discomfort, more active panhandler solicitation extracts larger payments through two channels. First, it makes passersby who would have felt the threat of some discomfort and thus paid the panhandler something even if he had solicited less actively feel a still greater threat and thus pay him more. Second, it makes passersby who would not have felt the threat of any discomfort and thus not paid the panhandler anything if he had solicited less actively feel a threat and thus pay him a positive amount.

An interesting question arises though. Panhandlers have imperfect information about how willing passersby are to pay to avoid this discomfort. They find this out through soliciting. So, in areas where passersby pay more (or more often), that might encourage panhandlers to be more active. I'm sure I'm not the only one who has been told not to pay panhandlers, because you just encourage more of the activity. It seems obvious. But is it true?

A new article by Gwendolyn Dordick (City College New York) and co-authors, published in the Journal of Urban Economics (ungated earlier version here), suggests probably not. They collected data from 154 walks through downtown Manhattan (centred around Broadway) in 2014 and 2015, where they observed the location and numbers of panhandlers. Importantly, their data collection occurred before and after several significant changes downtown, including the opening of One World Trade Center and its observation deck, and the increase in foot traffic associated with the September 11 Museum. This allowed them to evaluate how an increase in potential earnings (through more passersby, especially tourists) affects panhandling. They find that:

...the increase in panhandling was small and possibly zero (although our confidence intervals are not narrow enough to rule out relatively large changes). Panhandling moved from around Broadway toward areas where tourists were more common... We tentatively conclude that the supply elasticity of panhandling is low...

The moral hazard involved in giving to panhandlers seems to be small. More generally, the incidence of policy changes in places like Downtown Manhattan is likely to be pretty simple: a fairly constant group of panhandlers gains or loses; there is no “reserve army of panhandlers ”to eliminate any rise in returns by flooding in, and no shadowy “panhandling boss ”behind the scenes to soak up any gains by asking more money for right to panhandle in various locations (since control over even the best location is not worth much because substitute lo- cations are often vacant). Giving to panhandlers does not to any great extent encourage panhandling or a fortiori homelessness. 

In other words, when the expected earnings from panhandling increase, there isn't a sudden influx of new panhandlers, and existing panhandlers don't spend more time soliciting. Interestingly, they also find that:

Because the number of people who want to panhandle, even at the best times and places, is small, space is effectively free. Supply at zero price exceeds demand. Because space is free, so is courtesy, and so is abiding by norms.

There was little fighting among the panhandlers, because space was abundant. The main constraint to panhandling in Manhattan appeared to be that people didn't want to panhandle, not a lack of space to do so. This may also be because the panhandlers are 'target earners' - they only panhandle for long enough to earn what they wanted to for that day, so if the earnings are good they don't have to panhandle for very long (although Dordick et al.'s results cast some doubt on whether panhandlers actually are target earners).

What can Tauranga learn from the results of these two papers? Greater penalties on panhandlers will reduce panhandling, but it might also simply move it elsewhere. In these other locations, panhandlers will have to work even harder (perhaps being even more aggressive), and for longer, to achieve their target earnings. And because the best spaces for panhandling have been taken away from them, there may be even more conflict over the remaining spaces. I guess we'll see in due course.

[HT for the Leeson and Hardy paper: Marginal Revolution]