Thursday, April 23, 2009

Guest Blog: Lessons from the Economist’s Table

This blog entry is an article written by one of my best students, Brent Butgereit, who wanted to get it into the school paper, but it seems not to have been accepted. It's a clever solution to persistent housing problems on campus. I hope current students will think about this and consider implementing some version of this. If you're interested, contact Brent, or contact me and I'll put you in contact with Brent.

-Mike Hammock

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A couple of weeks ago, roughly three-fourths of the current student body went through “Housing Registration” which has all of the anxiety of uncertain living conditions combined with the tedium of waiting in long lines. This system is theoretically designed to maintain ‘fairness’ in room acquisition and yet in practices proves to be inefficient and largely non-negotiable.

Each student is randomly assigned a number within differently ranked class brackets. Upcoming seniors have priority above all other grades in housing registration because they have, in some sense, “earned it” by going to Rhodes longer (upcoming juniors are ranked below them and so on). The random numbers are meant to take the responsibility of ‘who gets to pick what room first’ out of the administration’s hands. Favoritism can be considered less of an influence with merciless Chance at the wheel.

But because Housing Registration is a lottery, it is unable to allocate the rooms to the people who would value them the most. As well, it may prevent the allocation of rooms to people who have no other housing options. The limited number of rooms and obligation for all first-year students to live on campus can result in upperclassmen – who because of their poor lottery numbers are unable to obtain on-campus housing – to have to transfer. Rhodes may be losing excellent students at the roll of a die (albeit a very large one).

At least once a week I have lunch with a table of economists (professors and classmates) to discuss the economics left out of the 101 and 102 models – or the economics of everyday life. The answer to the housing dilemma was simple (but not simplistic): establish a market for housing. One possibility could be that we randomly assign rooms to students and allow them to trade until they settle with a room they like. Students would at least have the opportunity to trade up to a room they value more. And while this could produce a slightly better outcome than the status quo, it faces the same problem of a random ‘number’ generator deciding who is going to stay on campus.

There might be a better way through the use of an auction; we could just bid for rooms. The person with the highest valuation of a room will be the one to get it. Of course, financial means are not equally distributed throughout the Rhodes student body – so bidding with actual dollars will not work (the students with more money have a clear bidding advantage over the students with less money). So what if we started using academic points instead? Simply put: the better you do in your classes (and the higher level the classes are), the more points you get. (For example, an ‘A’ in a 400-level class would give you 440 points while an ‘A’ in a 300-level would give you 340 points.) Students who are more successful in more rigorous classes would be rewarded by being able to use the points they earned to bid for better rooms. Moreover, this would still grant some degree of seniority to upperclassmen (who are more likely to take upper-level classes anyways). Rhodes could effectively establish a market for academic points where students could buy and sell each other’s points or simply use their own in the housing bidding process. Of course, this does not mean students have to sell their points.

Under the point-bidding system, students who are excelling academically are rewarded for their work while more-passive students will have an incentive to work harder. It is possible that the well-to-do students just buy a large number of points from the good-grade students and outbid everyone for the best rooms easily. But bear in mind that the good-grade students are able to decide whether they would rather have a monetary bonus or better housing arrangements – and that because they face this set of trade-offs, there will not be the flow of points from the hands of the many to the hands of a few. And regardless of whether or not the points accrue in the hands of the well-to-do, it will not be easy for any bidders to know the valuation others place on a room until the actual auction. Not knowing how many points it takes to win an auction means that attempts to amass large quantities of points could have the same outcome as if moderate amounts of points are amassed. However, it would be prudent to post the previous year’s bids for each room so that students can have an approximation of its price.

The most effective way to operate this auction would be via computers (leading to what I see as the biggest hurdle in changing systems – designing the software for bidding). But I don’t see this as being too much of a problem. Each student could place a bid for multiple rooms and the highest bidder would get the room. Should one student win multiple rooms, they select the room they want and the other rooms go to the next highest bidder. It should be made clear that this system would not fix the housing shortage; but it would make it less likely that the better students would have to leave because of a poor housing structure.

The current registration system does not work anywhere near as well as it should. And while the system suggested by the Economist’s Table is not perfect, it provides a way to allocate resources more efficiently. When trying to improve policy anywhere, our goal should be to minimize the inefficiencies knowing that we will never be able to completely eliminate them. With the relatively low cost of switching systems, I don’t see any reason why we shouldn’t try this out; the ability to improve efficiency and experiment with policy design should be welcome – especially in a small, liberal arts college where the objective is to expand learning beyond one’s major. I would be more than happy to talk with anyone who knows how to get this proposal implemented.

-Brent Butgereit