Arbitrage

The Daily Mail gives us a good example of arbitrage in action:

A criminal swindle of the nation's $64.7 billion food stamp program is playing out at small neighborhood stores around the country, where thousands of retailers are suspected of trading deals with customers, exchanging lesser amounts of cash for their stamps. Authorities say the stamps are then redeemed as usual by the unscrupulous merchants at face value, netting them huge profits and diverting as much as $330 million in taxpayer funds a year.

But the transactions are electronically recorded and federal investigators, wise to the practice, are closely monitoring thousands of convenience stories and mom-and-pop groceries in a push to halt the fraud, the Associated Press reports...

Illustrating yet again that the most efficient form of welfare is straight cash payments. If you ear mark a part of it for food, then those who want to spend money on something else will sell the food stamps at a discount.

Or shops will mark up all their prices and then offer discounts for cash payment, in the same way as Housing Benefit (welfare payments earmarked for rent) allows landlords to charge an HB claimant a higher rent than a non-claimant would be willing to pay to live at the same address.