ECON 490 LA Prompt for Reflection #4
This week we'll try a hypothetical. Many things on campus are allocated to students on a first come first serve basis. Other things are allocated on a priority basis, such as registering for class. Suppose the Campus gave each student an allocation of "Illinibucks" which could be used for the sole purpose of moving to the head of the line, at a pre-specified price set by the campus. What sort of thing would be a candidate for this? How would you spend your Illinibucks. What issues would arise if the administered price was too low? too high?
The use of exclusive currency in an academic setting is somewhat familiar to me. I had experience with this in middle school, where we were given "Study Bucks" that we could use to "buy" school supplies, snacks, and hall passes that could be used for 5 minute breaks during class. Initially, most students swarmed the snack shop and used their Study Bucks to buy all the candy they weren't allowed to have at home. Such methods quickly exhausted their money. Luckily, there was a way to earn more Study Bucks by actually studying (surprise surprise) during our daily study hall period! There was an abnormally quick transition when study hall transformed from "nap time" to "study time" after the introduction of these Study Bucks. As the semester wore on and more students were earnestly earning their Study Bucks, a supply shortage began occuring in the snack shop. Too many kids were feverishly buying candy and resupply wasn't quick enough. Enthusiasm for the Study Bucks immediately declined as word of the circumstances spread. Funny thing is, once the shortage in the snack shop abated, the amount of Study Bucks needed to buy the same snacks increased which caused another demand decline. When the high prices of snacks did not drop, study hall became "nap time" again.
If UIUC were to implement Illinibucks, I could imagine a similar situation occuring. Instead of going crazy over candy, students would jump at early registration opportunities, skipping the line at major events (concerts, sports games), perhaps even using Illinibucks to reserve certain venues for RSO usage. If I had to guess, I'd say the majority of students with Illinibucks would use it for earlier class registration. However, if every student got the same initial amount of Illinibucks, there would be an immediate problem -- how do we separate registration after there is overwhelming demand of early registration (assuming that prices are reasonable)? Do we look at more detailed stats, such as splitting students into "registration blocks" by the time that they paid for the registration privelige? In this case it would seem similar to combining Illinibucks with a "first come first serve" rule, where the earlier you pay the earlier you register. Alternatively, would there be a scaling "bonus fee" applied where students can pay an "inital early registration fee" with Illinibucks, but there would be tiered "bonus fees" to keep help a student keep their "early registration" time?
Quick related note: I know that similar bonus fees are currently enacted on car sales in China. For luxury brands like Audi, Mercedes Benz, and BMW, demand for those cars far exceed supply. So if you go to the dealership to purchase one of these cars, they will tell you the MSRP of the vehicle. However, they'll also tell you that an additional $XX amount of money is needed to "guarantee" that a car is available for you. If this additional fee is not paid, a tentative 3-4 month waiting time can inexplicably turn into 1 year or longer.
Back to the Illinibucks case, it's easy to see how reasonable, or arguably low prices for high demand services such as registration can cause issues. To circumvent such issues, Illinibucks prices on early registration could be raised very high, and demand would decrease. In addition, Illinibucks prices for other services such as skipping lines at major events, or reserving venues for RSOs could become relatively cheaper to funnel demand into those areas. If demand for early registion still does not decline after these measures, a secondary market for Illinibucks could develop where students are trading Illinibucks for favors such as swapping class notes, weekly rides to the supermarket, or to borrow course textbooks from friends. Following such a trend, the Illinibucks system could spread over to retailers on campus, where students can redeem Illinibucks after a certain amount of purchases. This would surely stimulate the UIUC campus economy. However, if students think that Illinibucks prices for high demand services like early registration is STILL too high after a bartering/redemption market develops, then certain students may dabble in counterfeiting the Illinibucks.
Above, I've outlined certain situations that I think would occur if an Illinibucks system were implemented. If Illinibucks were introduced, I think the biggest challenge would be a balancing act primarily based on demand for services/priviledges and Illinibucks prices for those services. At the core, I think an Illinibucks system would be available to help save students time. In the real world, time is the most expensive commodity. To reduce such an expensive commodity to "Illinibucks" is appealing because it makes convenience easily accessible to all students as opposed to spending real money. The question becomes "How much am I willing to spend to save XX amount of time?" Ultimately, implementing Illinibucks to simplify this question is definitely challenging.
This is a good and thorough analysis using economic principles. I appreciate that. Having had the experience in your middle school, with the study bucks looks like it gave you an advantage addressing the question. Nowadays, I suppose, nutritionists would frown on the solution of using "bribes" with candy to get kids to study, but it does show the extrinsic motivation that the individual values is effective in generating effort.
ReplyDeleteI did wonder from your example whether the prices were set too far away from equilibrium. Also, of interest, is whether supply could have been increased given the high level of demand.
I would definitely have to say that your post was much more analytical compared to mine. Where I focused greatly on the fairness of the distribution of Illinibucks and how that would effect students and their ability to advance further in the registration process, I really enjoyed how you took into account supply and demand and explored ideas other than simply registering earlier. You brought up a really good point about some of the consequences the university would face if students were all given an equal amount of Illinibucks from the start of their college career. It would start something very similar to gambling where students, like you mentioned, would begin to start exchanging their Illinibucks for class notes, other errands that students could use to their advantage and using others books. I also found it interesting that you mentioned the Study bucks in your earlier years of school which gave students the enthusiasm to get more bucks. Thus this system also created an enthusiasm that could allow students to get more motivated to get into other classes.
ReplyDeleteI do agree that this system would nonetheless cause rise to many questions that the University would need to fix.
It opens my horizon from your analysis and the combination of the hypothesis of Illinibucks and the reality of buying cars in China. I also have experienced some similar situation of Illinibucks in China. Some courses were so popular that not everyone wanting to add it can get the chance, so students sold and bought the popular courses by money. From your examples and my experiences, it seems that some money used to change the position in line is something in demand. But there are so many things, such as the price, allocation need to be solved well as the premise of using Illinibucks. Therefore, it is very hard to turn the hypothesis into reality.
ReplyDeleteMaybe the reason for the price increase for snacks in the middle school was because it was used as a way to "treat" students for a while. Afterwards, you had to earn it because they wanted to teach you that when you work hard then you shall be rewarded. I would have just used the studybucks just like everyone else. It is rational to use something when its cheap then have no demand when you actually have to "study" to get something. Maybe naps became more valuable later in the school year? Bartering and pay more than it is worth is done everyday.
ReplyDeleteThe china example example occurred in the US also. When the new chevy Camaro came out people had to pay above MSRP to get the car. This was due to large demand and limited supply. Bartering and pay more than it is worth is done everyday. When someone values something that that person will pay more than everyone because their demand is higher.