In an illustration of the BlogGeist at work, the issue of using lotteries to allocate scarce tickets to public events has come up in the Monday Message Board here and also at Crooked Timber. At first sight, the dispute over Bob Geldofâ€™s attempts to prevent resale of tickets to Live Aid 8, discussed by Henry Farrell at CT, looks like a classic dispute between hardheaded economists and soft social scientists. In reality itâ€™s nothing of the kind. The critics have not only ignored the issues raised by sociology and other disciplines, they have got their economics wrong.
The criticsâ€™ analysis starts at the point when the lottery concludes. Ex post, they say, allowing resale of the tickets makes both buyers and sellers better off, and makes no one worse off. For example, Lynne Kiesling says
Yeah, sure, there are people who are too broke to pay more than face (i.e., students, like I was when I attended a LiveAid concert), but they’ve already done the ticket lottery and I’m sure lots of students got tickets and are planning to attend.
and others imply much the same.
But this is woollier economics than anything Geldof has said. The people who are now selling their tickets almost certainly entered the lottery with the intention of resale. Obviously, this reduced the chances of genuine entrants like the students Kiesling refers to.
Moreover, to the extent that genuine entrants anticipate the involvement of scalpers, participation in the lottery will be reduced.
Itâ€™s true that, other things equal, and provided no-one has nonmonetary motives, concerns about fairness and so on, the equilibrium number of lottery ticket sales will be higher with scalpers than without. In effect, participation is raised because the scalpers line up in place of buyers who are unwilling to do so. This outweighs the decline in the number of genuine buyers.
But the critics have missed another crucial aspect of the equilibrium outcome. We need to take another step back and look at the supply of the concert itself.
Geldof is relying on donated services from musicians who would otherwise be selling them. To the extent that lottery tickets go to people who could not otherwise afford to pay, the musicians are giving up time, but not money (and getting good publicity). But with resale, the charity concert becomes a substitute for attendance at a standard concert. Musicians might reasonably change their minds about participation.
In summary, even without invoking nonmonetary motives, thereâ€™s no reason to suppose that the concert and lottery would raise as much money with resale as without. And the idea of auctioning tickets directly is subject to exactly the same criticism.
Of course, as Henry points out, the idea that motives are exclusively monetary is silly in general, and even sillier in the case of a charity concert. Itâ€™s well known that monetary and altruistic motives tend to crowd each other out.
There are very good reasons why monetary and non-monetary motives do not play well together. Once monetary motives are brought into play, there are opportunities for arbitrage, of which scalping is an example. Successful practitioners can turn consistent small profits into large gains at the expense of less sophisticated trading partners.
One version of arbitrage relies on calculation errors (sucker bets and the like). But attempts to manipulate non-monetary motivations of trading partners, including altruism, egoism, desire to avoid conflict and so on, are equally important. Many standard sales tricks fall into this class.
It follows that, in self-defence, people engaged in market dealings must avoid allowing themselves to be manipulated by appeals to non-monetary motives. A standard way of doing this is to adopt a division between monetary and other activities, with separate ethical standards for the two spheres. The idea that â€˜business is businessâ€™ is one expression of this.
Itâ€™s certainly possible to argue with this division. The push for corporate social responsibility is one example of an attempt to bring nonmonetary motives into the business sphere, though not one I imagine Geldofâ€™s critics would endorse. And feminist critics of household economy have made some good points about the operation of self-interest within a sphere thatâ€™s conventionally assumed to be governed by altruism.
Nevertheless, business dealings are always going to be different from other social relationships. Attempts to defend the separateness of the two spheres are both legitimate and desirable. Geldof is right and the critics are wrong.