Wednesday, July 12, 2006

Free Gas

Allstate Insurance gave away free gas today in Milwaukee, WI as a reward for Milwaukee ranking as the #1 mid-sized city in Allstate's safe driver list. The AP/NY Times reports that the giveaway (predictably?) resulted in long lines, fights, disorderly conduct arrests, and hospitalized police officers. People started lining up before midnight for a service that started at 6am, and the lines got so long that some residents had trouble getting out of their driveways.

Gas prices in Milwaukee average $3.17/gallon right now. Even with a 20 gallon tank in your car (and it's probably 12 or 15 gallons), if you timed it perfectly, so that your tank was empty, you'd be getting onyl $63.40 worth of free gas. If, more likely, you got 10 gallons of gas, that's $31.70.

If I announced that I was doing the same thing, but instead of giving out gas, was going to give $50 to each car that came, do you think there would be more, fewer, or the same number of people willing to wait more than 6 hours overnight (and sleep in their car)? I think there'd be fewer. To make the exercise easier, suppose I gave out the exact amount of money needed to fill your tank at a gas station just around the corner from me. More, fewer, or the same number of takers? Remember, this is more valuable, because you can use the money on anything, not just gas. (Although gas consumption is probably inelastic enough that this difference is negligable.) Still, I'm betting there would be far fewer people. (Unless I pitched it as a "free gas" giveaway....)

4 Comments:

Blogger BW said...

I am with you. I think there would be way fewer although I don't know why. I guess I am thinking about a comparison with Ben and Jerry's free cone day. There's no way if I made people wait in line to get a couple bucks that as many people show up to take my money as show up to take their ice cream. It makes no sense, so maybe we're just wrong. People's love of "free" stuff always baffles me. Surely some behavioralist must have studied this, no?

7/12/2006 9:33 PM  
Blogger Tony Vallencourt said...

I guess you could model it somehow by thinking of "free stuff" as utility received without any marginal utility/price comparisons. If consumers find thinking about prices dificult, then they may prefer free stuff to equal amounts of money. The problem, of course, is you can always just immediately turn free money into free stuff without thinking. Do you lack a committment device to actually do this?

I don't know.

7/13/2006 12:04 AM  
Blogger Candy Minx said...

Um, maybe it wouldn't take as long as filling up a gas tank to give away 50 bucks. Would you need to say "50 bucks if you wait six hours"?

7/17/2006 7:30 PM  
Blogger Tony Vallencourt said...

That's actually a good point. It should be $50 bucks, but it takes as long as it would to fill up a tank (say 5 minutes). So, let's say, you get to the front of the line, wait 5 minutes, and I give you $50.

7/17/2006 9:49 PM  

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