We recently rediscovered Tim Harford’s Undercover Economist advice columns and thought it might make for some interesting reading to the new generation of economics students in the School.
Dear Undercover Economist
I live in a student house with six others. All of us drink milk, some a lot, some a little. Only three of us buy milk, and we buy three different varieties, meaning my preferred type can quickly run out. Worse, my variety (semi-skimmed) seems to be the second preference of everyone else. Free-riding is common, but I don’t want to spoil the atmosphere with strict rules and enforcement mechanisms. What course of action would you recommend?
You clearly think that people would never volunteer their fair share of the milk bill and that the monitoring systems necessary to ensure compliance would be onerous. This is a naïve reading of economic theory because even rational economic agents can gain utility from acting honestly. Your course of action therefore needs to be identifies empirically.
Draw inspiration from Paul F., also known as ‘the bagel man’. Paul F. is a retired economist who now runs a bagel delivery business to offices. He operates an honour system, where people take bagels and leave the cash to pay for them.
Paul F. keeps scrupulous records about the payment rates of all his clients and shared them with Steven Levitt and Stephen Dubner, the authors of Freakonomics.
Perhaps you should simply leave a contribution box to make it easy for your housemates to contribute a few pennies as they swipe your milk. Paul F. found that this system produced a payment rate of 89 per cent. Even better, he saw more honesty in small offices and in the office where he himself worked. A student house is probably similar.
Honesty only broke down in times of stress, such as Christmas – so guard the box in exam season.
Yours honestly, The Undercover Economist