August 13, 2010

What standing in line for Shakespeare says about the free market

By What standing in line for Shakespeare says about the free market

Author: Timothy Sandefur

Just got an interesting email from the Shakespeare Theater Company in Washington, D.C., about their annual “free for all” performance. This is a performance (of Twelfth Night) by a professional company—not community theater—that’s open to the public for free. But the email includes this note: “New this year, we will distribute the majority of Free For All tickets through an online ticket lottery. Last year, high demand created long lines in the summer heat….”

Now here’s a fine example of an elementary economics lesson that few seem ever to remember. If you have unlimited demand for a limited resource (which is always the case) then you are confronted with the difficult task of deciding how to distribute that resource—in this case, tickets to a play—to the people who want them. How do you do this?

Aristotle says the just distribution is to distribute things to the people who are best suited for them. You give flutes to flute players and lyres to lyre players, not the other way around. But that doesn’t help us much, because while we can easily determine who are flute players and who are lyre players, we can’t figure out who is the “best” theater goer. Ideally, it’s the person who values going to the theater the most. So how do we distribute the limited resource to the persons who place the highest value on it?

Perhaps you can find a group of experts on theater-going—brilliant literary scholars and critics who will decide, as a group, whom to give the tickets to. But there are two huge problems with this—first, they cannot possibly know who really are the ideal theater goers. There’s just too much information to collect. They could do polls, tests, check people’s high school English grades, and so forth, but they can never really collect all the information necessary to distribute the tickets in the “right” way. Even if they could do that, things change all the time—people are born and die, move out of the city or change their theater-going preferences, so these experts would have to keep on top of it all, which is an impossible task. This is Hayek’s “knowledge problem.” The second problem is that these experts would be unable to help diverting the tickets to people they like instead of to people who really “ought” to get them. They wouldn’t necessarily become corrupt—they’d just be biased by the fact that some people would beg them for tickets, and wine and dine them, and make every effort to look like they really should get the tickets. Our panel of experts would then fall prey to the problem of “rent seeking”—that is, lobbying by private interest groups—that has been so well explained by James Buchanan and Gordon Tullock.

If we give up on our panel of experts, we have two other alternatives. Queueing—that is, “first come, first served”—or selling them. The Shakespeare Theater Company has chosen queueing. They say on their website: “To enter the Free For All Lottery…Visit this page between midnight and 1 p.m. on the day of the performance. The lottery closes precisely at 1 p.m. You will be notified via email if you have been selected….”

Now, is this fair? A lot of people favor doing things this way rather than selling things because they think it’s more fair than selling the tickets. But there’s nothing fair about it—in fact, you’re still basically selling the tickets, but for time instead of money. You’re selling tickets to people who have the time to line up (or get on the website at the right time). People who have other obligations are out of luck. That system certainly does not get the tickets to those who ought to have the tickets—it gets them to the people who are able to stand around all day in line, or fool around on their work computers. That is not fair.

So we’re left with the last alternative—a market economy. That is, an auction system. You sell the tickets. Then the people who want to go to the theater can decide for themselves how much they’re really willing to invest in seeing the play. You eliminate from the crowd those people who don’t really want to go that badly. The tickets go to those who place the highest value on them. In fact, no matter what you do, people are going to sell them anyway. If you randomly hand out the tickets both to those who do, and those who don’t want to go to the theater, those who don’t want the tickets will end up selling their tickets to those who want them really badly. This will happen even if you make it illegal to sell tickets—a black market.

Although people sometimes describe the market economy as more “efficient,” what they mean by that is that the tickets will go to those who value them most highly, without wasting everyone’s time, and without giving the tickets to people who don’t really want them that badly. This is not just efficient—it’s fair. It’s just. It’s right. Aristotle is right that a limited resource should be distributed not just to everyone, but to those who value the resources most highly—and the best mechanism for arranging that is a free market economy where people can prioritize for themselves and decide how badly they really want theater tickets.

Oh, by the way, the same goes for health care.

Update: I answer a recurring question here.

What to read next