Friday, October 5, 2007

On Economics and Beer

My friend and I had lunch at the Lucky Labrador brew pub in Portland recently and enjoyed pints of their fresh hop concoction "The Mutt." Yum - think Beaujolais Nouveau in beer, perhaps a little green tasting but very interesting. But that's not the point of this screed. What is the point is that we ordered our pints and were served, wonder of wonders, a real pint! Three cheers for Lucky Lab! In case you are unaware (as most are), the typical 'pint' served in the typical pub in Oregon is no such thing. They are served in what are known as shaker glasses, the very popular, thick, stackable straight sided glasses like the one in the picture. Thing is, these glasses hold about 13oz. Don't believe it? Well, if you have ever bought a souvenir glass from a pub and taken it home and poured yourself a nice bottle of beer in it, you'll no doubt notice that the beer with a bit of head fits perfectly. This is a subject the aforementioned friend has blogged about himself. This has become a pet peeve of mine. Not that I mind pubs using the shaker glasses - I quite like them - but these pubs have no business calling what they serve a 'pint' of beer. (Word of caution, there are shaker style glasses that are a full 16oz, but they are very rare) Update: Join the new Honest Pint Project!!

Which finally brings me to the economics point: a classic market failure for which government intervention is appropriate is what is known as 'asymmetric information.' One of the most classic economics papers of all time is a fairly simple story of used cars and shows that since owners of used cars know much more about the true quality of the car than prospective buyers, market inefficiencies can result. Thus governments can step in an enact truth in advertising laws, anti-fraud laws, etc. In my current example, most customers do not know they they are being served considerably less than a pint and when informed of this, often react in outrage. But how are they to know, do we expect customers to bring in their own measures? Of course not, we rely on the government to enact and enforce laws that protect us - the free market will simply not work properly (as it would if we could all tell just by looking precisely how much we are being served). True this is 'small beer' in terms of import, but switch the commodity in question to gasoline and you can see how quickly a small problem can be made big. Note that what is required here is a non-market intervention, an extra-market enforcement of laws that assures market efficiency.

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