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Kshitij Lauria '13: The case for markets

In the last few weeks, the Brown community was faced with several issues that are connected by a single thread, and barely a day goes by when a glance through The Herald does not turn up something that economic thinking could greatly clarify. This alone does not surprise me, for, like the ancient Chinese game of Go, in economics one can find a metaphor for every aspect of life. And, quite like Go, even though the general problem of economics remains unsolved, we have been able to develop strategies and techniques that offer insights in almost any given situation.

Put very simply, economics addresses the problem of the allocation of scarce resources. The beauty of economics lies in the fortunate fact that we can draw substantial conclusions even from abstract assumptions, which then apply to a wide range of situations. Sometimes the assumptions capture most of the essential aspects of what we're trying to study, and then we are in luck. But the usefulness of economics lies in the fortunate fact that we can be wiser by its application even when the fit is not perfect. In today's column, I discuss perhaps the least controversial issue for which economics has good answers.

Consider tableslips. The Undergraduate Finance Board recently voted to end funding for tableslips in dining halls ("UFB will end funding for tableslips after break," March 17).

Tableslips are a useful but flawed way of advertising events on campus: they are disproportionately useful to underclassmen, who often have no other good ways of finding out; they are environmentally unfriendly and costlier than electronic alternatives; they require no action on the part of the advertisee, who literally sees them next to the napkins; and so on.

Economics suggests that the best solution is usually not all or nothing — there is likely a happy medium between the two extremes. There are those that benefit from tableslips: underclassmen, asocial people, student groups that target them, people who like making paper airplanes from tableslips, etc. There are others that derive no benefit from and may even object to tableslips: upperclassmen, people off meal plan, people concerned about the environment (although worrying about tableslips is a spectacularly inefficient use of your time and energy), student groups that target them, etc. The same group of people may have different opinions at different times: a frat might not care about tableslips except when it throws a party; I won't care about them next semester, but I certainly support them now. And of course the UFB would like to spend its money as wisely as possible for the benefit of all.

In short, there are preferences and there are resources. Without knowing any more about the situation, I can make two quick predictions: that the cost of tableslipping is likely too low, and that the people who benefit from it aren't the ones who are paying. Let's take these one by one.

What does it mean for the cost of tableslipping to be "too low"? There is of course the actual monetary price. This gives us a great tool for limiting tableslipping to desired levels by charging for the privilege (analogous to the tax on cigarettes). This policy tool is both simple and flexible: we can tweak things as the time and place demands. But my bigger concern here is the cost of not using that money elsewhere. Other uses could range from close substitutes — other forms of advertisement — to entirely different things, like pizza for meetings. In the worst case, the opportunity cost is zero — that is, if there is special funding earmarked for this use only. There is then no incentive to be prudent, and no way for a student group to make wiser spending decisions by weighing alternative uses for each spent dollar.

Once we adjust the opportunity cost of tableslipping to more accurately reflect reality, we have also partially shifted the burden of payment to where it more properly belongs. Now the tableslip fund is no longer "free money"; instead, each student group spends in proportion to the benefit it perceives in tableslipping. The other side of the equation is the student body that is being served by this whole business and that pays for the whole thing.

While there are good arguments to be made for students not being the ultimate decision-makers for every dollar that is spent on their behalf, we should have that power where student groups are concerned. In a very egalitarian way, we can then vote with our pockets to encourage behavior we like, and vice-versa. It also gives student groups valuable information: it tells them precisely who wants them the most, and what they want from them.

You have now seen in action yet another meta-benefit of economic analysis: it is fair, presupposes nothing, and values no viewpoint over another. It allows us to turn unproductive discussion about morals into a productive one about preferences and resources. And although its conclusions are positive ("what is"), they are invaluable in making judgments that are normative ("what should be").

Kshitij Lauria '13 supports Doing Things Right™.




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