Marginal Utility

by Ken Houghton

Don Boudreaux, posting at Cafe Hayek, encounters congestion:

Late Friday evening, Karol and I flew, on Delta Airlines, from Bucharest to New York's JFK airport. We had two hours to connect to our Delta flight to Washington's Dulles airport. We missed our flight. And herein lies a lesson.

The reason we missed our flight is that nearly 50 minutes of our time after landing was consumed by waiting in a long and slow-moving line to clear passport control. At that terminal on Friday evening, the TSA had only three agents to service the line of U.S. citizens returning from abroad. Three. That's it. Most of the passport-control-agent booths stood empty.

Let us ignore that it is unclear how 50 minutes became 120, and assume that Don and Karol[1] made optimal use of their other time. Let us further assume (since he grouses about it) that they placed a nonnegative Utility value on making that connection. Here is what they did for the fifty minutes:

So as we silently fumed and inched forward in line...

It's a pity there wasn't an economist looking over their shoulder, Marshall McLuhan-like. Because, had there been an economist available, s/he could have told him a few things, such as

1. The person in front of them took slightly less than 50 minutes, the person behind them (presuming there was one) slightly more.
   
2. There were likely people in front of him who were not catching connecting flights, or in any other way time-dependent. For those people, the Utility value of getting through Passport Control was likely lower than it was for Don and Karol.
   
3. People who do not value something as much as you do are likely willing to exchange it for a sum that you are willing to pay. This is how the ideal free market works.[2]
   
4. It is even possible that there are some people—not economists, to be certain, but people who take up a customs agent's time nonetheless—who would willingly let you get in front of them.[3]
   
5. Many years ago, an economist named George Akerlof wrote a paper about the effect of Informational Asymmetries on a free market. (Despite its lack of mathematics, it is well-known in economics, as is Akerlof.) He noted that some asymmetries can be remedied, though they may have Discovery Costs associated with them.
   
6. In this situation, the initial Discovery Cost is time spent asking people questions. Since Boudreaux spent the time "silently fuming," one must presume he found this more utile than doing some Price Discovery.[4] Economists can explain this to him as well, it's called "revealed preferences." (For instance, see this economist discuss how creditors actually treat people who declare bankruptcy.)
   
7. Now Mr. Boudreaux may note that altruists are few and far between, and, knowing point (3) above, might note that he would have had to compensate someone in front of him. An economist could have told him that he would then have been involved in a market transaction in which he and Karol would decide whether the Utility they would perceive is worth the cost. This is called "choice" and "opportunity cost," which Tim Schilling lists as the Most Important Concept in Economics. It is a shame no one ever taught it to Mr. Boudreaux.
   

Economists the world over should feel sorry for Mr. Boudreaux, who decides to blame "the government" for his choice not to engage in any Price Discovery and goes on to make a specious comment about national health care when his time might be better spent taking intermediate economics at a local community college.

Unfortunately for him, anyone with more than a soupcon of training in economics (or, probably, psychology or sociology) would recognize his Revealed Preferences, and note that he has only himself to blame for his Utility Maximization preferences.[5]

For an example of what an Economist would do—what Information Exchange and Discovery can produce—see John Whitehead, who appears to understand that economics is still a social science.


[1] I am assuming that Karol is the other person's first name, and therefore referring to them the same. This should not be thought to assume familiarity.
[2] We will ignore for the moment contracts of adhesion and the like, as they clearly do not apply in this circumstance.
[3] In the real world, they are called altruists. In the economics world, they are either treated as irrational or modeled so that they gain Utility from surrendering it. For the purpose of this discussion, though, it is sufficient to know that (1) they exist and (2) they might be in front of you.
[4] It is even possible, in such a situation, that Boudreaux would have discovered someone (behind him in line) who valued his Utility enough to compensate Boudreaux. Clearly, though, there was no economist behind him, either.
[5] Megan McArdleA blogger for The Economist, apparently, excepted.

Labels: congestion pricing, Economics, Health Care, Trains Planes and Automobiles