- ‘First come, first served’ allocation of scarce resources incentivizes waiting in line
- How a society allocates scarce resources determines how people compete for those resources
- Private property and voluntary exchange encourages productive behavior to compete for resources
For college basketball fans, the excitement of “March Madness” is just around the corner. March marks the beginning of the mesmerizing three-week tournament to crown a college hoops champion, an event packed with buzzer-beaters, upsets, and office bracket pools across the nation.
Duke University’s basketball program, one of the traditional favorites to win the tournament, is also home to a unique tradition that can teach us a valuable economic lesson.
Krzyzewskiville, or more easily called K-ville, is a tradition reportedly dating back to 1986, in which students live in tents outside the basketball arena in order to obtain prime student seating for major Duke home basketball games. It is named after long-time head basketball coach Mike Krzyzewski. Why would these students forsake the comfort of their dorm rooms or apartments, often for weeks?
Student seats at the games are allocated on a “first come, first served” basis, so those first to set up camp outside the arena get first choice of seats in the student section. Front row seating comes with ample tv exposure, not to mention prime real estate for heckling opposing players.
Like any economic good, seats at Cameron Indoor Stadium are scarce. Each seat can be used by only one student, even though many more fans would desire a seat at the game. This is where economics comes into play.
The method by which scarce goods are allocated will determine how people compete to obtain those goods. In the case of K-ville, the first come, first served method of allocation incentivizes students to be first in line to obtain the most desirable seats.
Imagine, instead, if those seats were allocated, say, according to feats of strength. Instead of filling up tents in K-ville, students would fill up the campus weight room to out-lift each other to earn a spot at the front of the line. Or, what if coach K himself personally distributed the student tickets? Students wouldn’t waste time in tents, instead they would go to great lengths to curry favor with Coach K – perhaps by showering him with gifts – in hopes of being rewarded with prime seats.
Just like those front-row Duke basketball tickets, all economic goods face the same potential dilemma of multiple people desiring to lay claim to the same resource.
One of the key question society must answer, then, is: What system of allocating scarce resources most encourages greater production of needed goods and services, resulting in a higher standard of living?
Several methods are conceivable. They include:
First come, first served: whoever is first to claim or physically obtain the good gets to keep it. We see this method playing out in the tents of K-ville. Those willing to forego other uses of their time in order to wait longest in line will be rewarded. It may also involve a little luck as well, with those who happen to be closest to some valuable good having the greatest ease of getting to it first. Obviously, rewarding the first in line does not incentivize productive activity.
Winner take all: there is a contest in which the winner is awarded control of their desired goods. Depending on the contest – be it strength, intelligence, height – the winner may be selected by chance or through acquiring a skill arbitrarily chosen by an authority figure. Such a process is unlikely to encourage greater production, but rather incentivize people to train themselves to win the contest.
Lottery: there is a drawing to see who wins ownership of the goods in question. This rewards people by pure luck.
Someone decides: an authority figure decides who gets what. Concentrating so much power over scarce goods into the hands of a single person or committee invites corruption. As such, people are incentivized to bribe or threaten the decision-makers to obtain what they desire (i.e. sending coach K gifts in exchange for tickets). Lobbying becomes more rewarding than investments in productivity.
Need: an authority figure determines who is in most desperate “need” of the good, and awards it to him. Attempting to distribute by “need,” however, subjects distribution to the arbitrary definition of “need” by the authority figure. Productive activity could be discouraged by the risk of losing access to goods because one is not considered “needy” in the eyes of the decider.
None of those options seem like a particularly productive (or fair) means by which to allocate scarce resources. Which brings us to:
Exchange of private property: Private property implies that goods have an owner, and that owner is the one with just and legal authority to determine how that good is used. The owner can consume it, use it for productive purposes, stockpile it or trade it. One acquires rights over property thru voluntary exchange, whether those exchanges involve goods for goods, goods for money, or money for labor.
Under such a system, in order to compete for desired goods, one must offer something of value in exchange. This incentivizes greater productivity – the key to improving the standard of living for a society.
The method society chooses for how scarce resources are allocated will generate very different types of behavior, and results.
Only a system based on private property rights and free exchange will provide the framework for a more prosperous society, as this system is the only one to truly incentivize productive activity.
When applied correctly, the economic way of thinking can equip us to observe economic laws in action all around us – even in the behavior of hoops-crazy college kids in tents. To ignore these lessons would be true madness.