Coercion and External Costs: Auckland Beast With Two Backs Edition

From our old pal Eric Crampton, something I gather must be a "problem" for undergrads: noisy dorm room canoodling. The GTM had a piece here a while back on side payments for dorm rooms at Duke. The relevant take-away from that story is that room accommodations for students tend to be part of bundled contracts: they're tied to attendance, and typically, no one raises a stink when the housing department leans a little to the thuggish side.

And why should anyone, so long as the conditions aren't too gulag-ish? The kids are out of the house for the first time in their lives, so they're happy. The parents just got one of their rooms back to use for their own externality generation, so they're happy, and the community sure doesn't want roving gangs of young adults churning the local rental markets, so they're, well, they're not unhappy. Universities can get away with a whole lot more coercion with 18-22 year old kids than they might with, say, people my age.

But officials still should probably let students find their own mutually beneficial solutions to common pool problems, right? Being especially rigid with room assignments seems peculiar. Roth has all these cool matching algorithms to perhaps make initial assignments better. You, know, maybe have something like OKCupid for dorm rooms, and then why not have exchanges or something for the fine tuning?

I suppose this is what they call a bleg: at your university, how do administrators determine room assignments? What could be done to make the process better? Is this even an important problem?

You May Find Yourself Living in a Shotgun Shack

Tyler Cowen directs my eyes to a photo essay of teeny tiny little Hong Kong apartments. The author, Adam Taylor, describes the squalor as "shocking". I can sort of agree, though I feel it necessary to point out that for the better part of two years, I lived aboard a dinky sailboat that was too small to stand up in, so please forgive me if I refrain from rending my clothes and gnashing my teeth.

Taylor notes high income inequality, but I think my interpretation of this state of affairs is a little different. Far from cause for worry, I celebrate Hong Kong's liberal immigration policy. Imagine how much worse things were back home. Imagine how much better many of these people will be in the future by (a) having access to
one of the freest economy in the world and (b) having clear incentives to improve their human capital. Imagine getting some good before-and-after pictures.

Slum housing: not euvoluntary. Alternatives: probably worse.

More Tales From the Front: Duke Still Angry Students MAY Have Used Side Payments

This is almost too perfect. You can't get a better lesson in the basic problems of property rights and exchange than by looking at what the admins at Duke are doing. Do NOT try this at home, kids, because it is not the right way to do this.

This blog covered, in a previous post, the basics of the Duke House System, where groups were assigned space and then "allowed" to exchange. (Question: students are paying, and admins are paid out of that tuition money. Why when it comes to housing do the students work for the admins, rather than vice versa? If the students want to trade, and no one else is involved, why the firetruck do the admins get to veto it?)

Anyway, more kerfuffle about alleged (GASP!) payments. Excerpt:

After the housing lottery, some selective living groups were in the market for better housing.

InCube, JAM!, Chi Psi fraternity and Delta Sigma Phi fraternity have all engaged in successful section swaps. In the two weeks following the Oct. 25 housing lottery for next year, Housing, Dining and Residence Life allowed groups seeking a different section to exchange with another group as long as the trade was mutual, said Joe Gonzalez, associate dean for residence life. All of the exchanges had to be approved by HDRL.

After swapping with Jam!, InCube—assigned 1915 Yearby Ave. on Central Campus in the lottery—will instead retain its current section at 205 Alexander Ave. under the house model next Fall.

InCube was unhappy with its original housing assignment because it recently invested about $25,000 in its current common room on Alexander Avenue. JAM! was assigned this location in the October lottery, so InCube entered trading negotiations with them immediately after the housing lottery.

“There were no problems at all,” said JAM! President Elizabeth Clark, a junior. “Everyone at InCube was hoping that we’d switch with [JAM!], and when I brought the idea back to JAM!, everyone was really enthusiastic about it.”

HDRL approved the second housing trade with similar success.

After the lottery, Chi Psi fraternity approached Delta Sigma Phi fraternity and showed an interest in trading sections, said Delta Sigma Phi President Zach Sperling, a junior. Delta Sigma Phi was originally assigned to Edens Quadrangle 3B, and Chi Psi was assigned to Craven Quadrangle B.

“While [Edens] is a great place to live, it is somewhat removed from the rest of campus,” Sperling wrote in an email Thursday. “We were quite pleased with where [Chi Psi] section was. It was a mutually beneficial trade.”

Chi Psi President Matt Straus, a senior, declined to comment.

“Overall, [trading] was a smooth process,” Sperling said. “[Gonzalez and Donna Lisker, associate dean of undergraduate education and co-chair of the House Model committee,] were very accommodating and put a lot of time into making sure trades went smoothly after housing was chosen”.

The swapping process was not without controversy, however, as rumors of groups offering bribes for a new section circulated.

"Bribes?" Payments are only bribes if they are illegal. Payments should only be illegal if there is some abuse of power. If a student group paid an admin for a better housing draw, THAT would be a bribe. No one has alleged anything like that. Instead, what is being whispered is that some euvoluntary exchanges may have taken place.

How can a payment from a group that really values a space, to a group that doesn't value the space much, count as a bribe? That would be "compensation," for those of you keeping score at home.

Look at the property rights problem here: Duke has turned the dorm space into a common pool resource. No one has incentives to improve the space, because if they improve it they may not get the same draw next year. And the improved value of the space would make the lucky group that DOES get the space want to hold onto it.

If you are going to randomize ownership rights, returning us to a Hobbesian anarchy, at least you should allow side payments so groups have some hope of trading to get their space back. If you spend $25,000 improving the property, you would like to have use of the property. Conversely, if you can't get secure rights to the property, you won't invest in it. Not because you don't want to, but because it will be stolen by lawless lottery bandits.

The "no bribes" (sic) policy is not just dumb. It's dumb on big tall clown stilts, with a red rubber ball nose.