Saturday, December 15, 2012

Rat Poo Smell Bad

In my dream last night, I was walking around Provo (it was a long, weird dream) and I came across a small unmanned candy shop full of bins, a scale, and a voluntary contribution box. You were supposed to weigh your candy and pay what you owed.

Either the nerd in my started thinking of the economics of it as soon as I woke up, or my dream version of myself is just like my real-life nerd self. Either way, I wondered how a business like this would forecast its revenue. The owner must figure out not just volume, but also apply some sort of "compliance factor." And this compliance factor would be a measurement of public honesty.

Then I thought of how you would go about measuring public honesty as a means of setting your compliance factor, and I ended up realizing that what a firm pays to not have voluntary contributions must be the dollar-value of the loss it would incur if it did have voluntary contributions. So if I pay a worker six dollars per hour and the worker does nothing but run the cash register, then I would expect to lose six dollars per hour with an unmanned cash register.

There are two problems I see to this thinking. One is that having a worker who can make change boosts sales because people don't have to buy candy equal to their set of cash values available. (Although having a POS machine available takes care of that problem.) The second problem is related to the broken window fallacy: in the world with cash register jockeys, we don't see the cleaning out of the shop that would happen otherwise. It's not just a few dollars' worth of candy that the worker is protecting, but the entire stock.

Basically, like all ideas that seem wonderful in a dream, in real life they're not so great. This reminds me of a Sunday School lesson I had as a teenager. The instructor said he and his friends once stayed up late drinking wine, and after a while they thought they'd discovered a very profound truth. Wanting to be sure they didn't forget it, they wrote it down. In the morning they read the paper and saw that they'd written, "Rat poo smell bad."

1 comment:

The sort-of Republican said...

Somebody wanted to try out a similar business model to measure the "compliance factory" to which you referred. This was the result: