What struck the economists was the absence of information. Food banks had no way to express what they valued, no view of what was available, and no means to coordinate across regions. Some were excellent at logistics. Others had deep relationships with donors. Others had neither advantage. Yet all were trying to serve their communities under enormous pressure.
The Chicago team proposed something that, at the time, sounded like an odd choice for a charitable network: a market, complete with a custom-designed currency called “shares.” Every food bank would receive an allotment of shares based on how many people it served. Those shares could then be used to bid on truckloads of food in a daily national auction.
If a food bank desperately needed cereal, it could signal that by bidding more. If it already had enough cereal but urgently needed rice, it could save its shares for that instead. If something undesirable arrived — like potato chips or, true story, Tupperware lids missing their containers — the auction assigned it a negative price: taking it earned you extra shares.
It was a system designed to convert preferences (information each food bank had about its community’s needs) into visible, actionable signals. Prendergast describes this as the price discovery function of markets: the mechanism that reveals “how much you like a certain kind of food compared to another kind of food.” The bidding activity quickly revealed patterns no centralized planner could have seen.
Cereal, for instance, wasn’t just more valuable than broccoli; it was dramatically more valuable. The economists had assumed maybe a 6:1 ratio in preference intensity. The auction showed a ratio closer to 35:1.