Thursday, September 27, 2012

Opportunism and Identity Economics

Opportunism and Identity Economics

Instances of failure to take advantage of opportunities is an ongoing theme in my life. Example are too numerous to settle on just one. For the sake of the assignment I settled on a recent example of a public goods dilemma, that my fiancee experienced. It was called "free laundry day".

For some background info, my partner and I are completely different people when it comes to our judgement and reasoning. As an economist I pride myself on being "mostly rational", given my already bounded rationality. My future wife, on the other hand, favors following her heart/emotions and her particularly keen sense of justice.  As you probably may have guessed, we often disagree on how people should behave in certain situations, which leads us to free laundry day.

Free laundry day is a historic residence hall tradition where even the dirtiest of coeds all bum rush the laundry room for 24 hours to save $2.25 per load of clothes. Also for many it may be the first time  in their lives they have had to wash their own clothes. Throughout this period, from 9am to 9am, emotions run wild, property is damaged, tempers flare, and the laundry room winds up a complete mess. Free laundry day is a great example of a public goods dilemma because the community must share the limited resources of the equipment but no one is particularly responsible for regulating usage or up-keep. As an added bonus, once someone has finished a load their machine unlocks and their clothes are left unprotected.

Back to the story, our disagreement comes from how we each approached the problem with free laundry day. I decided to take a game theory approach centered around efficiency and minimizing my personal stress. I decided to go to the laundry room when I thought the least amount of students would be around, which happens to be close to my normal wake time in the morning around 6:30am. I reasoned that I would also try to wash all of my clothes at the same time to reduce the length of the process, and wasted energy from repeated trips to the laundry room. I got to the laundry room, with one other student (we saluted each others genius with a high-five) used 4 washers and 4 dryers, finished everything and was back in my room and off to class, in a grand total of 2 hours. Absolutely no fuss. My fiancee chose to go after her classes, when she got there all the machines were filled and the room was filled with people. She argued with students about whether it was fair to monopolize a single machine for several hours, and she yelled at people for removing other people's clothes from a machine. After all of that she did not even get to wash her clothes during the first day. She tried again the next morning to mimic me, but when she got there she did not think it was fair to use a lot of machines at once, so she let a friend use a couple of the machines she saved for herself. Suffice it to say, she was not able to take full advantage of free laundry day and ended up paying to dry her last few loads.

She relied on a sense of fairness and her emotional connections with her friend which lead her to give up the machines. Even after all she had been through, when she had the chance she did not take advantage of it. The social-emotional form of thinking may not always seem to follow rational economical thinking but her justification for doing what she did mirrors utility theory in a way. She said "I did the right thing because I put more value into being a good person than I do in getting free laundry". Her statements reminded me of what the famous economist George Akerlof calls "Identity Economics", which is something that we usually do not discuss in a traditional economics course. Her identity along with her motivation to maintain her social connection with her friend combined to make her choose not to take full advantage of her opportunity.

Opportunistic behavior can be considered unethical or irrational but the criteria of which these judgments are based, are highly subjective and are interpreted through the goals, motivations and values of the actor or the viewer. More than just being a good citizen, an individual could have less noble motivations to not be opportunistic. Other times they may have different motivations like implicit contracts or face high social costs/ retribution. It would be very difficult to justify a limited explanation of why people choose not to take advantage of opportunities.

Friday, September 14, 2012

Housing as an Organization

During my life I have held several jobs all of which have had very different organizational structures and cultures. The job that most stands out is my current job as a Resident Advisor for Residential Life/University Housing. I have been working as an RA for almost 3 semesters and I have gotten to know the organization quite well.

The organizational structure is very similar to a typical corporation we have a hierarchy that extends from the Director of housing down to the resident advisors. There are several different areas that are under the organizational umbrella but the one that I am most familiar with is undergraduate housing. Undergraduate housing has it's own associate director. The associate director is responsible for coordinating all of the residence hall staff members and all of the administrative duties of the department. Just under the associate director are the area coordinators. The area coordinators run groups of residence halls and function as mid-level managers. The area coordinators also manage the resident directors and the resident advisors in their group of residence halls. The resident directors live in and run the individual residence halls while directly manage the resident advisors. Resident advisors live on the floors with students, managing individual floors/communities and carrying out the necessary administrative duties of the halls.

The decision structure is a combination of both Hub and Edge policies. In general, the Hub or central office sends out directives or sets out the policies that must be enforced by the employees and the Edge, typically resident directors and advisors. Day to day decisions are handled at the Edge, and only when things get truly out of hand for large issues, will the Hub take over the decision process.

Housing as an organization faces several situations where they incur transaction costs both external and internal. Their main market is student/family housing so they face heavy competition from the local real estate and rental markets. By and large, the market is able to provide student housing much more efficiently for undergraduates. In order to compete the university has expanded its basic housing to cover food, recreation, and educational needs. This expansion increased their costs and the cost for students dramatically. The main reason that university housing has been able to stay in the market is due to the policy they enacted through the university, mandating that all freshmen must live in university housing for their first semester. The policy has not been a complete life saver and now the main goal of housing has shifted to retaining students.The comparative advantage of the market has been the driving force for recent developments in student housing aimed at accomplishing their new goal. These developments have altered both their internal and external transaction costs.

Internal cost are focused around communication between the Hub and Edge. This has lead to housing employing and developing technology and online communication capabilities for its staff, which makes communication more efficient. Externally the university has shifted to expanding its reach by improving its services like dining and recreation by modernizing its facilities. The biggest changes come from a complete redesign of the future of student housing. New buildings are being built based on input from residents that will be more modern, spacious, and comfortable.

There is more to university housing as an organization that I did not explore but if you have questions, comments, and additions I would be happy to discuss them with you.

Thursday, September 6, 2012

Robert Giffen the Economist

Sir Robert Giffen is a famous Scottish economist born in 1837. Giffen is most well known for the economic phenomenon that bears his name the Giffen Good. A Giffen Good is a good with a positive sloping demand curve, meaning that as the price rises people buy more of that good. This is a very rare occurrence in the real world and the best known example are potatoes during the Great Potato Famine in Ireland. Granted there is some controversy surrounding the real origin of the discovery, some scholars claim he may have never mentioned it and it was a simple misattribution by the economist Alfred Marshall.

Not including the Giffen Good, Robert Giffen had a substantial influence in Economics and Finance in Great Britain. He was assistant editor for the popular magazine The Economist. he published extensively regarding several topics in economics and public finance including Essays on Finance 1879 & 1884 and The Growth of Capital 1890. During his life he was also the Head of the Statistics Department for the Board of Trade, President of the Royal Statistical Society, and an elected member of the Royal Swedish Academy of Sciences. Last but not least he was also knighted under the Order of the Bath.

I first heard of Robert Giffen in my high school economics class but became familiar with him more during my  Micro Economic Theory course, where we explored the economics of Giffen Goods. I do not feel that Giffen is of particular interest to this course, but his legacy as a economic journalist is something that I respect because he helped present economics in a way that is digestible by the general population. (Which isn't done as much as it should be I think.)

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