Earlier this week, I was going about my day peacefully, with the sun finally breaking the depressing monotony of constant rain. However, as I was once told, everything has a trade-off, and the trade-off to this wonderful day was the earth-shattering news that the Fire Marshall was coming to town. You could see the collective panic in everyone's eyes, as they flocked back to their rooms to ensure they did not violate the dreaded University of Virginia Fire Code. I, a humble supplicant to the UVA Housing Authority for the past four years, had nothing to hide, and went about my day rather peacefully, but the arrival of everybody's favorite Fire Marshall got me thinking: why do we pay this guy to come and strike fear into our collective hearts once every semester? Tapping into my vast reserves of econ knowledge, I quickly realized that us students living on Grounds faced the classic prisoner's dilemma.
If both Student A and Student B comply with the Fire Code, gain payoffs of 28 and 16 respectively, as they both know that all their belongings will not go up in flames because someone else in their hall has violated the fire code. However, Student A really knows that their room would look great they could cover their wall in autographed Virginia Men's Basketball posters, and hangs up the posters, thus raising their own utility payoff to 31 as they have a better looking room. Student B will now have a lower utility payoff of as the chances of the dorm catching on fire have gone up because of the ludicrous number of posters on Student A's wall, while he does not personally benefit from noncompliance. As such, Student B will proceed to not comply with the Fire Code, thus increasing his utility payoff to 12 from having a better looking room, but lowering Student A's utility payoff as A is now concerned over his valuable autographed posters going up in smoke. Both Student A and B have dominant strategies to not comply with the fire code. Through pursuing their respective dominant strategies to improve their own utility, all Student A and B end up doing is reaching a Pareto inefficient dominant strategy equilibrium of Fire Code noncompliance. The Fire Marshall steps in as a government-like outside enforcer, compelling students to compliance through writing them up and rechecking their rooms for fire code violations until they all fall back into the Pareto efficient equilibrium of mutual Fire Code compliance. Despite the fear he strikes in many hearts, the Fire Marshall is paid for by the students as part on Grounds, ensuring they stay in the Pareto efficient equilibrium of Fire Code compliance. In practice, however, individuals quickly fall back to the Pareto inefficient dominant strategy equilibrium, as they simply hide any potential Fire Code violations while the Fire Marshall is visiting, before returning to noncompliance when he goes away. This is because the Fire Marshall's visits are telegraphed, simply incentivizing students to compliance for the week they are told he will be visiting. To truly ensure residents stay at the Pareto efficient equilibrium, the Fire Marshall should randomly visit unannounced once or twice a semester, thus pushing residents to constant fire code compliance as they would not know when the Fire Marshall could come. This solution might break a privacy law or two, but a Pareto efficient outcome is a compelling argument.
That being said, I quite like my autographed Virginia basketball posters, so I wouldn't mind staying at the Pareto inefficient dominant strategy equilibrium.
Student A \ Student B
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Comply w/ Fire Code
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Don’t Comply w/ Fire Code
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Comply w/ Fire Code
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Don’t Comply w/ Fire Code
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If both Student A and Student B comply with the Fire Code, gain payoffs of 28 and 16 respectively, as they both know that all their belongings will not go up in flames because someone else in their hall has violated the fire code. However, Student A really knows that their room would look great they could cover their wall in autographed Virginia Men's Basketball posters, and hangs up the posters, thus raising their own utility payoff to 31 as they have a better looking room. Student B will now have a lower utility payoff of as the chances of the dorm catching on fire have gone up because of the ludicrous number of posters on Student A's wall, while he does not personally benefit from noncompliance. As such, Student B will proceed to not comply with the Fire Code, thus increasing his utility payoff to 12 from having a better looking room, but lowering Student A's utility payoff as A is now concerned over his valuable autographed posters going up in smoke. Both Student A and B have dominant strategies to not comply with the fire code. Through pursuing their respective dominant strategies to improve their own utility, all Student A and B end up doing is reaching a Pareto inefficient dominant strategy equilibrium of Fire Code noncompliance. The Fire Marshall steps in as a government-like outside enforcer, compelling students to compliance through writing them up and rechecking their rooms for fire code violations until they all fall back into the Pareto efficient equilibrium of mutual Fire Code compliance. Despite the fear he strikes in many hearts, the Fire Marshall is paid for by the students as part on Grounds, ensuring they stay in the Pareto efficient equilibrium of Fire Code compliance. In practice, however, individuals quickly fall back to the Pareto inefficient dominant strategy equilibrium, as they simply hide any potential Fire Code violations while the Fire Marshall is visiting, before returning to noncompliance when he goes away. This is because the Fire Marshall's visits are telegraphed, simply incentivizing students to compliance for the week they are told he will be visiting. To truly ensure residents stay at the Pareto efficient equilibrium, the Fire Marshall should randomly visit unannounced once or twice a semester, thus pushing residents to constant fire code compliance as they would not know when the Fire Marshall could come. This solution might break a privacy law or two, but a Pareto efficient outcome is a compelling argument.
That being said, I quite like my autographed Virginia basketball posters, so I wouldn't mind staying at the Pareto inefficient dominant strategy equilibrium.
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