Economist's Notebook: Notes From Atlanta

I have written many times on the labeling of glassware for beer, but here is a new one - clearly marked wine glasses! Well done.



I also wrote on the curious tip guide on the bottom of my receipt at Kenny & Zukes. Well at Legal Seafood in Atlanta they go one better. They bring the card reader to your table, European Style (though we still are in the dark ages of magnetic strips), and then this screen appears. You have the option of entering your own percentage or amount, or you can choose one of the three convenient options: 15, 18 or 20%. (Note to K&Zs: even at a fancy Atlanta restaurant, they are not bold enough to go to 25% and they can pay the wait staff less than minimum wage) I got out of the waitress that she doesn't have to use the machine and for her regulars who give her good tips, she goes the old manual way because that induces more generous tips, but for irregulars, so to speak, the machine yields better results.

Beeronomics: An Economist's Preferred Honest Pint at Belmont Station

This escaped my attention until now. Via John Foyston, a message from Belmont Station:

A FULL 16 ounce PINT EVERY TIME. You asked for it, we're delivering. We are now using oversize glasses with a 16 ounce line. Be patient. Let it settle a moment. If it's not 16 ounces we'll top it up. More beer for you. Less waste!

Yeay! Kudos to them for going to marked glassware. I have not seen them, but I can only hope that the mark looks a little something like this:

Beeronomics: Honest Pints

Beervana blogger Jeff Alworth's Honest Pint Project is getting a lot of play in the news these days, and even in Salem. See his Honest Pint Project website for details about all of the news coverage. But this report by KATU's Jeff Jaeger is the best one I have seen to explain very clearly the problem.





I have blogged about the economics of the problem before: it is an asymmetric information problem - punters can't tell how much they are getting but bars know how much they are serving. The incentive then is for businesses to cheat and the market outcome will be inefficient. What is nice about this story is that they find a place, Grand Central Bowl, that intentionally uses cheater pints (14oz glasses) and advertises a 'pint' on the menu. This is exactly the problem. [As is the problem of establishments that are unwittingly using cheater pints]

But this is also why I am not so sure about the bill. It seems fairly innocuous, so I don't think there will be much harm done, but the much easier and permanent remedy has always been, in my mind, marked glassware. It is incredibly cheap (if you allow a phase in period) and solves the problem permanently.

Beeronomics: The Honest Pint Project Goes to Salem

Beervana blogger Jeff Alworth's Honest Pint Project is gaining some serious traction. A new bill has been proposed that would require inspections of pubs and would certify their compliance with a true 16oz pint rule with a official decal (I imagine one like the state health 'complied' and 'exceeded' stickers for restaurants).

Though as an economist I support the Honest Pint Project, I do not support this legislation. I think it is costly, requiring inspections; I think it is not entirely effective, there are plenty of opportunities for cheater pints; and I think there is a better solution.

My solution has always been to do what the Brits do: require marked glassware like in the picture. Glassware suppliers can certify the volume and etch it on the glass itself. It is a lot easier to monitor a few glassware suppliers than hundreds of pubs and restaurants and etching adds very little to the extra cost of glassware (and can be phased in to save a big one-time cost to pubs and restaurants). Besides, having an Oregon state seal on a glass certifying its volume would be cool!


The reason I support this remedy is because it addresses the essential market failure: asymmetric information - drinkers do not know the volume of the glasses their beer is served in. Once full information is restored, the market will do the rest.

Beeronomics: Honest Pints in Britain - or - Still Imperial after all These Years

There has been a lot of attention paid to my good friend's Honest Pint Project here in the US as people start to wonder what size glass of beer they are being served. Now from the UK comes this tidbit: after a battle with the bureaucrats in the European Union, the Brits won the fight to keep the imperial pint. Doing so preserved an essential part of their culture: to drink an ungodly number of true imperial pints in one sitting. [I honestly don't know how they do it - I was once in Heathrow Airport in the early morning in the international departures lounge watching a group of English holiday makers down beer and each had about 6 empty pint glasses in front of them, and they hadn't even left yet for their vacation! Truly astonishing, and pity the poor Spanish who have to put up with the louts. Me mum's English so I know of what I speak.]

From the BBC: "Innovation, Universities and Skills Secretary John Denham, who is responsible for national weights and measures, was delighted. He said after the European Parliament vote: 'People in Britain like their pint and their mile. They should be able to use the measures they are most familiar with, and now they can be sure that they will continue to do so. '"

I have two comments. First, why don't we label the glassware used in bars so we know what we are being served? Second a minister of innovation, universities and skills?!? How cool is that title? Of course, that the secretary of I, U and S is involved in the imperial pint fracas kinds puts lie to the title, doesn't it? Still, it doesn't seem like such a bad idea to institutionalize the idea that a country should have a coordinated approach to education and research and development.

Ah well, its Friday, so cheers! Have a good weekend.

Beeronomics: Honest Pint Project in the Wall Street Journal

Over the weekend the Wall Street Journal reported on the Honest Pint Project. Unfortunately for all of humanity, the reporter, with whom I spoke, did not choose to discuss my erudite discussion of the economics of information but nonetheless she did manage to write a pretty interesting article about the economics of the craft beer industry and incorporate the Honest Pint into it.

The best part of the article, however, was this picture which shows the problem of asymmetric information. Oh yea, and it did do a good job of describing Jeff slinking off into the gents with a pint glass and measuring cup tucked under his shirt. If not for martyrs like Jeff, where would we be?

Also a note: I went to the Hopworks Urban Brewery (HUB) on SE Powell in Portland last week and had some very good beer and exceptional service (the very friendly server brought me a number of free tasters) . I admit to liking but not loving Brewmaster Christian Ettinger's beers - they have an astringent quality that I find displeasing, an antiseptic bite that lingers on the tongue - but my companion did have one truly transcendent beer, the Baltic Porter. The pub itself is fantastic, the service wonderful, the beer very good and the Baltic Porter is out of this world. But this is not what I wanted to say. What I wanted to say is that HUB uses a unique style of glassware that has on it, clearly marked, a 14oz line (well below the rim). HUB also prices its beer, very clearly, as 16.5oz. Good for them - an honest, well, pint and change. The point is that they are clear about what they are serving and charging for.

I have one quibble, however, and that is 16.5 ounces must be right to the rim of the glass. Meaning that with head, the beer will not really be 16.5 ounces. The 14oz line is clearly there for serving purposes, allowing for the head to rise above. Why not just use that?

Beeronomics: Cereal Boxes and the Honest Pint

Brewers are not the only ones facing higher ingredient prices these days - cereal manufacturers are too. So what to do? Well, you can raise prices or you can shrink the box and hope that consumers won't notice. Cereal manufacturers seem to be successfully doing the latter. So will brewers be tempted to start shrinking servings of beer at their pubs? Would you know if they did? Maybe it is time to get on board with the honest pint.

By the way, anyone know any good brew pubs in New Orleans?

More Beeronomics

Over on the Beervana Blog's 'Honest Pint Project' some commenters have pointed out that the under-pour (or "profit-pour" in a lexicon that is new to me) is just as insidious as the cheater pint if not more so. To this I replied that the under-pour is a full-information market phenomenon to which an immediate reaction can be made (leave no tip*, do not buy another, do not return, tell your friends, etc.). Market efficiency should result. Why I have such a distaste for the cheater pint is that most customers do not know they are being served substantially less than a pint. Market efficiency will not result.

But anyway, in the comments section John Foyston of The Oregonian mentions that as hops and malt prices increase (as they have been doing and are expected to do so in the near future) the practice of under-pouring may become epidemic. Which got my little head thinking - why would a business under-pour and not simply raise prices? One answer relies on the unsuspecting customer who doesn't know they will be given a not-full glass. The problem with this argument is that I believe that for most pubs the customer who shows up once on a whim and never returns again is a relatively small portion of their overall business. Most customers of a pub will have more than one beer in a visit, will visit repeatedly and/or will go based on a recommendation from a friend. In the economics parlance (as I know you are dying to know) a pub beer is an experience good - one which you don't know the quality before you try it, but after you are likely to be a repeat customer if it is a good one. So preying on uninformed customers is probably not a good strategy.

Perhaps the answer lies in the concept of "sticky prices." First, some background. Economists have for a long time understood two things: One, Keynes was theoretically wrong, but his theories do a remarkably good job making sense of the real world macro-economy. Two, that modern macro theory seems completely right, but does a terrible job explaining what we see in the real world. (And here insert your own favorite economist joke about how economists don't really know anything) So economists have searched for the modification to macro theory that will reconcile it with reality. (physicists have superstring theory - economists have sticky prices) To give but one simple example, why do we have unemployment? When macroeconomic conditions deteriorate, why don't wages instantaneously lower to restore equilibrium between supply and demand for labor? Well, many or most wages are not allowed to change instantaneously because they are set by employment contracts, turnover is costly to firms so they hesitate to lower wages, etc. So wages are a sticky price (wages being the 'price' of labor) and with this incorporated into modern macro theory - it works! There are lots of this type of example, prices set in contracts between suppliers and firms, prices that are posted and printed in may forms that are hard to change (think about bus fares as one example) and - yes - even menus themselves.



This last example feels a bit stale in this era of personal computers and laser printers, but there is still a cost to restaurants that comes from changing prices that makes them reluctant to do so too often. (It could also be that they are afraid of annoying frequent customers) So what does a restaurant do in the face of increasing cost of ingredients? One strategy is to start cutting down on portions. Thus, with hop and malt prices on the rise these days, the best advice when one enters a brewpub is caveat emptor!




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*This is going to be my strategy, because from my restaurant experience I know that if servers start complaining to the bartenders - problem solved. Bartenders hate nothing more than to have servers barking at them.

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.

Economics and Beer cont...

What is perhaps most surprising about the beer case is that this is not a new problem brought about by a popular glass. The British have been requiring a government stamp on pint glasses used in pubs since 1699 to assure the 'punters' that they are getting a right measure of the best bitter. (Something by the way that is changing due to the vagaries of the EU) There you have not only an economically correct government regulation, but one that works beautifully - all parties are immediately satisfied that a full imperial pint is being served and the government has little to do, but licence glass manufacturers and verify on occasion that they are meeting the 20oz requirement. So why not in the US?