Free-Riding for a Free Dinner

     In my sorority, house dinner is catered every night, Sunday-Wednesday, by Flavor Catering. All members are required to buy house dinner for at least one night each week, every week for the entire semester, at the beginning of every semester. Girls that live in the house, however, are required to buy three nights of house dinner. This semester, I bought house dinner for Tuesday nights. However, I lived in the house last year, and bought three nights a week for two semesters, and know that there is always extra food on Sunday nights because they expect most people to eat house dinner that night. Because I have this knowledge, if I am at the house before dinner on Sunday nights, for chapter or other events, I will typically stay and eat the Sunday night dinner, despite the fact that I only paid for one dinner a week on Tuesday nights.

    I am an active contributor to the free-rider problem in this instance. Because I know that there is always extra food on Sundays, and I know that they are not going to object to just one more person eating dinner than is supposed to be, I take advantage of available food that is difficult to exclude people from eating and get a free meal. If more people use this knowledge to their advantage and ate house dinner on nights that they did not pay for, then the sorority may have to start making house dinner available to everyone by charging for it in dues, effectively making house dinner a public good for sorority members, or restrict house dinner to only girls that live in the house, preventing people like me from free-riding and taking free meals whenever we want one, regardless of which night we actually bought dinner for.

Larry David the economist

 I've recently been binge watching Larry David's "Curb Your Enthusiasm". The show follows Larry as he goes through life. Larry has a very particular way of thinking that often causes him to get into verbal altercations; however, Larry is almost always right. He views life economically. If he is wronged he expects an equal "payment" to compensate him for the negative externality that was imposed on him. This payment is not always a money transfer (mt), but I am sure that Larry does the calculations to make sure the utility he gains from any form of payment (ap) would equate to a money transfer so that, MUmt = MUap. Unfortunately for Larry, the tragedy of life is that most people are "irrational" and don't think like his economic brain does. This often fuels the confrontation. 

One day Larry walks into a gym locker room. Gyms and therefore locker rooms are private with a limited membership (excludability and rivalrous). However, the air inside the locker room is public. When Larry walks up to the sink, there is a paunchy man applying a hefty amount of baby powder to his armpits. As he does this, powder explodes into the air contaminating it significantly, covering Larry's glasses. Because the air inside the private area is public, a fair coasian solution to this localized problem would be for the paunchy man to offer some sort of payment to offset the marginal damages that the powder in the air. In this situation, the damage of the powder is a complete loss of vision for Larry and because of this he just turns away and leaves he locker room. In a rare moment of self restraint and non-confrontation, one can only assume that the damage done to Larry was so costly to him that he had no interest in staying around no matter what the cost. If the man offered Larry $1,000 (maybe even $100) he surely would have stayed and endured the powder contaminated air, but in the real world transaction costs are a real issue and the cost to Larry of having to ask this man to either stop or pay him a fee and then bicker and negotiate with the man was too high for Larry this time. 

Pareto Efficiency and Gift Giving

 When growing up my favorite gift was Star War Lego sets. I could build and play with them for hours on end, and since my parents were not a fan of letting me have a lot of “screen time” growing up I often did. So naturally when Christmas and my birthday rolled around I wanted Legos.. So what does this have to do with Economics? Well, gift-giving in theory is a Pareto efficient move, it's a move that makes someone (the recipient) better off without decreasing the utility of others (if the person giving the gift derives satisfaction from making the recipient happy that outweighs the costs of purchasing the good). However, in reality, it is not Pareto efficient its Pareto inefficient. We live in a world where gift-givers do not know their recipient's preferences perfectly and thus situations arise where it is possible to reallocate resources to make someone better off without decreasing the utility of others.

For example, there were many years when my Grandmother, who is very sweet and loving, would get me nice button-down tees, which I despised wearing. If the shirts and the Legos cost the same and my Grandmother derives the same amount of utility from seeing me with Legos or with shirts then moving to the bundle where I receive the Lego Star Wars is a pareto efficient move. While I tried leaving hints over the year that I really wanted a Star War Lego set she never caught on and so we were stuck in a Pareto inefficient equilibrium. And this happens with most gifts unless someone is given a cash transfer, which is typically seen as taboo. Even when I received a Lego Treehouse set it still was not Pareto efficient equilibrium because I preferred the Lego Star Wars set (costs being the same). I know this sounds like I was being ungrateful but ultimately it doesn’t change the fact that it was not my preferred choice. I do not think the takeaway is that we shouldn’t give gifts, rather I think this should make us realize that maybe gift-giving is more about kindness and acknowledging the important people in our life than the gift in and of itself.

America's Newest Citizen!

     Last week, one of my best friends got his American citizenship after years and years of preparation. After our in-class discussion of the utter irrationality that is the act of voting in America, I thought about David. David has spent countless hours advocating for U.S. candidates he believes in and campaigning for their success anywhere from local to national elections. This seems crazy given David could not even vote himself. Yet, he has and continues to be involved almost every day, regardless of election cycles. He even ran for student government in our high school. Why?

   Under the assumptions made in the equation B+D-C≥0, I would argue David's "D" would indicate that he receives immense utility from the actions of his involvement in the political realm. I would go so far as to say that the expressive value of his involvement and "Americanness" outweighed his inability to actually cast a vote. I also firmly believe that his "D" will continue to be greater than 0 for his entire life suggesting that David will now vote any time and every time that he can as his expected utility will be greater than 0.