By Declan Hunt
In his exceedingly popular piece last week, Dylan described the consumption of drinks by attendees at Over the Hedge as being far from equitable, and proposed a number of solutions to fix this inequality in the future. This week, we’ll build on his work, and, in the true spirit of economics,
abuse apply a number of assumptions and models to try and determine the optimal drink allocation at any given launch party.
People attend launch parties to drink; they may say otherwise, but that is ultimately why they are there. It follows that our representative attendee derives their utility from the amount of drinks they consume. I put that our representative attendee’s utility function is – at a minimum – weakly increasing with consumption; when drinking they display myopic tendencies and always regard the next drink as having non-negative utility, or have an extremely high discounting factor on the future consequences of drinking meaning these are not considered at all. We’ll also adopt a relatively standard assumption: marginal utility diminishes with each additional drink consumed but remains non-negative. Our attendee also has the option of costlessly disposing of any unwanted drink, so consequently would aim to maximize the number of drinks they physically hold and decide whether to drink them later. In short: more drinks are always better than less for the representative attendee.
So now we’ve established that attendees want to maximise their consumption, it takes little further analysis to establish that as the good is free (notwithstanding the membership price), attendees theoretically demand an infinite number of drinks. However, in the market for drinks at Over the Hedge, the endowment of drinks was restricted to $5,000 (about 500 drinks). In economic terms, the optimal allocation was not feasible as total demand exceeded the endowment, and thus the allocation was also not efficient. More broadly, an efficient allocation will not be possible in the case of our representative agent regardless of the size of the bar tab, as total demand for drinks will always exceed the endowment.
With the properties of our attendee and the market for drinks at a launch party, efficiency is nigh on impossible to achieve. A counter-argument could be made that the marginal utility of consumption becomes negative after a large number of drinks, thus giving each attendee a maximum non-infinite quantity demanded and allowing a sufficiently large bar tab to result in a feasible final allocation. However, one could reasonably counter that this negative marginal utility only becomes apparent with the benefit of hindsight, and in the moment the attendee will always see the next drink as having positive marginal utility.
Now that we’ve established efficiency is incredibly hard to achieve, we can dive headfirst into the world of normative economics and focus on the central idea of Bar Tabs: A Case Study in Tragedy of the Commons: equity. To better understand how (in)equitable the allocation of drinks was at Over the Hedge, we look to macroeconomics for inspiration. The Lorenz curve is a graphical representation of income or wealth inequality in a country or economy, showing the proportion of income or wealth held by each percentile of the population (red line). If there is perfect equality in an economy, each percentile will have 1% of the economy’s income or wealth (blue line). From this we can calculate areas A and B, which let us calculate the Gini coefficient, a numerical measure of inequality calculated as A/(A+B). The Gini coefficient being closer to 0 represents greater equality, whereas a coefficient closer to 1 represents greater inequality.
From last week, we know that the bar tab at Over the Hedge was worth approximately 500 drinks, and that the 20 ‘veteran’ attendees were able to collect 14 drinks each – 280 in total – in the first few minutes. The final observation needed to construct our graph is the total attendance – estimated by the UQES executive at approximately 200. We can then plot our Lorenz curve; the top 10% of attendees consume 56% of the tab, and the remainder of attendees consume 44% of the tab, which we’ll distribute linearly in our first case.
However, as was mentioned last week, the distribution of drinks amongst the remainder of attendees was far from linear. Those with more experience at launch parties may have managed two trips to the bar before the tab was exhausted, but others with less experience may have only managed a single trip or none at all. In effect, the true Lorenz curve lies below the linear distribution, so inequality is greater. A Lorenz curve better modelling these observations is shown below.
Now we can measure inequality in the allocation of drinks, we can see how it compares to some common benchmarks. In our first (best) case, the Gini coefficient is 0.50, whereas in the second (true) case it is much greater at 0.58. This may be cause for grave concern. The OECD average Gini coefficient is 0.33, and Australia’s is 0.34. Over the Hedge places somewhere between two economies widely regarded as having poor income equality: the United States (0.48), and South Africa (0.62 – the worst inequality in a developed country).
In Bar Tabs: A Case Study in Tragedy of the Commons, Dylan proposed that this level of inequality posed a serious issue which warranted intervention, an opinion shared by myself. Whilst a level of inequality may have the benefit of encouraging attendees to arrive on time to maximise their allocation, a system which heavily punishes those arriving fashionably late is entirely unfashionable. There are other arguments for equality improving equality too, the strongest of which is that with limited launch party experience, new society members may not get a drink, thus not enjoying the afternoon or their involvement with the society. Improving equality may make the society a more welcoming one, and thus boost memberships.
So which of the proposed solutions would allow the launch party to have a lower level of inequality? In short: all of them. Each of the solutions proposed by Dylan would lower inequality to some extent. We’ll spend the rest of this article having a look at just how effective each method is, and discuss the other consequences of implementing each method.
The single greatest improvement to equality would be through the implementation of a drink limit, executed through a token system. As discussed last week, this would allow every attendee to have a drink, including those who arrive late. However, implementing such a system would be incredibly difficult. If aiming to move the Lorenz curve onto the line of perfect equality, the host society would need to perfectly foresee the number of launch party attendees to equally allocate tokens, which is currently nothing short of an impossibility. Introducing an event ticketing system may help better estimate the attendance, but any RSVPs who do not show would leave unredeemed tokens, which the society would then have to contend with on the day.
However use of any highly restrictive token system would not come without PR consequences. As eloquently stated last week: “Attendees would feel betrayed by the very societies in which they had placed their faith; for many University students, receiving [a limited number of drinks] is entirely unthinkable. In turn, membership sales in the subsequent year would plummet, sending the offending societies into disarray.” Although a society may gain new members through any inclusivity benefits of equality, they’d be sure to lose existing ones, making a restrictive token system simply a non-starter.
The most practical way of implementing a less-restrictive token system may be to allocate only some proportion (perhaps half) of the tab into tokens, and then state a time at which people can simply go to the bar and order drinks on the tab without needing a token. This allows all those who arrive early or fashionably late to receive a more equal allocation, and minimises the impact of the veterans on the tab within the first quarter hour, whilst still providing them an opportunity to apply their craft.
A line policing policy would be more palatable for attendees, whilst also improving equality. By ensuring attendees enter the line at the back, the impact of veterans would be greatly diminished, as they would not be able to accumulate drinks so rapidly. This would also move the Lorenz curve towards the line of perfect equality, however does nothing to ensure those arriving fashionably late receive a drink, so the equality improvement is less than under a full or partial token system. This system additionally burdens the host society with policing duties, so would be wildly unpopular amongst the society’s officers.
The final improvement proposed last week was an increase in the total value of the bar tab, and thus the endowment of drinks. Whether this improves equality depends entirely on the behaviour of both attendees and prospective attendees. In the case where the attendance remains constant and veterans consume the same number of drinks, equality is improved as the veterans consume proportionally less so other attendees can consume more. In the case where the attendance remains constant and emboldened veterans consume the same proportion of drinks, there is no change to equality, although other attendees would still be able to consume more drinks so there would be a welfare improvement.
In the case where the publicised larger tab results in an increase in attendance (as would be the case with a multi-society launch party), the unit consumption of veterans would be proportionally less and consumed by a smaller proportion of attendees, so equality may show marginal improvement. However, the increase in attendance may be heavily composed of veterans from other societies, offsetting any benefits from the larger tab and perhaps worsening inequality at the party. Overall, it is difficult to say what effect an increase in bar tab would have on launch party equality, however the last case is most likely as increased funding is most often achieved through merging the launch party with another society.
So, much like last week, we’ve arrived at a point where we are faced with three somewhat-to-largely unappealing proposals which could improve launch party equality. Change will be tough; the first society to attempt improvement will face a unique first-mover disadvantage, as other societies with less equitable systems will become more preferred by veterans and other seasoned launch party attendees. Only when action is taken across a number of societies will equality improving actions not harm a solitary changemaker. Is this a call to action for other student societies? Who knows. Does 10% of attendees consuming over 50% of the bar tab warrant an intervention? Absolutely.