The consequences of the dungeon master shortage

As I noted in this post earlier this week, when the price of a good or service is below the equilibrium price, then the quantity of the good or service demanded will exceed the quantity of the good or service supplied, and there will be a shortage. But what if the usual price of the good or service is zero? In that case, there is often a shortage. An example I use in my classes is the 'market' for kidneys for human transplant. I put 'market' in inverted commas because in most countries there is no market. You can't buy or sell kidneys for transplant. This is effectively the same as mandating a zero price for kidneys. The result is a predictable shortage of kidneys for transplant, that kills over 40,000 people per year in the US alone. Fortunately, not all goods or services with a zero price have such fatal consequences.

As I noted in the earlier post, when there is a shortage, we should expect the price of the good or service to increase. That is unless, like the 'market' for donor kidneys, the price is mandated to be zero. For some markets that start with a zero price though, a shortage can be the impetus to introduce a new (non-zero) market price. As an example, take the market for dungeon masters, as reported in this article published on Hell Gate last week:

Playing the role of Dungeon Master can be a rewarding job but it is sometimes thankless, and always taxing. D&D can be overwhelming to any new player; this is especially true for a DM, who needs to know all the rules, adjudicate them, create or manage the story, plan logistics for their group, and cater the experience to what each player wants. The amount of effort involved makes it inaccessible for new players and difficult for experienced ones to sustain long-term.

All of which has conspired to make it harder to find people to actually run the spiking number of campaigns. "I think a lot of DMs just want to sit back and let other people run a game," one Dungeon Master on hiatus from running campaigns told me...

The shortage has made it difficult for many players to find games, especially ones that are high quality and in-person. On websites like Lex and Reddit, posts of players in the city looking for DMs outnumber the opposite significantly, with the latter consistently getting more traction. For Hex&Co.'s program alone, there are nine hundred on the email recruiting list to join one of their organized campaigns...

One solution that has emerged to this problem are players paying for a professional DM. In New York City, some of these DMs are functionally gig workers, contracting with a service like Hex&Co.'s where players pay the store $90 per month for four sessions, and the proceeds are split between the store and DM...

Some have managed to make a full career out of organizing bespoke games for a significantly higher fee. Charging upwards of $100 per hour, they'll create campaigns for a group of players tailored to their interests, experience levels and playing styles, providing a suite of game terrains and miniatures they'll tote to players' homes.

The new market 'price' for a dungeon master (DM) will likely raise the number of amateur DMs taking on paid gigs, reducing the shortage. However, are there likely to be some unintended consequences of this?

Uri Gneezy and Aldo Rustichini ran a famous experiment in Israeli day-care centres (described in Gneezy's book co-authored with John List, The Why Axis, which I reviewed here) where day-care centres began fining parents who showed up late to pick up their children. In theory, the higher price of a late pickup (because of the fine) should have induced fewer late pick-ups. However, this new system replaced the existing norm of picking up children on time, and actually resulted in more late pick-ups.

In the context of DMs, the previous norm was that DMs were unpaid, creating and running campaigns or gaming sessions for the love of the game. Some DMs would spent countless unpaid hours developing their game world, dungeons, main antagonists, and so on. What happens when the norm of those unpaid hours (and the labour of love they were associated with) become unpaid development time for paid gaming sessions? Perhaps would-be paid DMs put more time into development, leading to higher quality gaming sessions (the last paragraph quoted above suggests that). On the other hand, perhaps DMs would reduce their efforts, if they perceive the 'new' market price as unworthy of significant preparation time.

I guess we will have to see how this all plays out.

[HT: Marginal Revolution]

Fuel price controls vs. climate change

Sometimes, government policy just makes little sense. And sometimes, the economic model that you have in your head doesn't help. Take the example of fuel price controls, which Timothy Welch (University of Auckland) wrote about in this article in The Conversation last week:

The government announcement that the Commerce Commission will soon have the power to regulate wholesale petrol and diesel prices might be good news for cash-strapped motorists, but it’s arguably a retrograde step in the fight against climate change.

While there is some scepticism about whether the commission will ever act to enforce fuel price caps, any move to make carbon-emitting vehicles more affordable must come at the expense of efforts to encourage people out of cars and into more sustainable modes of transport...

Aside from being counter to other plans to mitigate climate change, there is plenty of evidence that price caps can often cause outcomes opposite to those intended. Sometimes, leaving it to the market can be the better option. 

Let's look at this. If the government puts a price control on a perfectly competitive market, we can illustrate its effect with the supply and demand model, as shown in the diagram below. The equilibrium price of petrol is equal to P0, and Q0 petrol is traded. The government thinks that price is too high, so (through the Commerce Commission) they implement a price ceiling (a legal maximum price) of PMAX, which is below P0. The consequence is that the quantity of petrol demanded increases to QD, but the quantity of petrol supplied decreases to QS. There is a shortage of petrol, and only QS petrol is traded.

So, with the price control, less petrol is traded than without the price control. That seems like a win-win for consumers and the climate, and would suggest that we should not be concerned. However, there are two problems here. First, many consumers would be missing out on petrol (there is a shortage at the price ceiling of PMAX). So, it doesn't make all consumers better off. However, the second problem is more fundamental. The market for petrol is not perfectly competitive. While I have argued before (for example, here) that the supply and demand model is usually robust to situations where the market is not perfectly competitive, government intervention in the market is an exception. The firms in the market for petrol have some market power, because they differentiate themselves (on the basis of branding, and the location of their outlets).

A more correct model is shown in the diagram below. The firm with market power operates at the profit maximising quantity, which is the quantity where marginal revenue is exactly equal to marginal cost. That is the quantity Q0, and in order to sell Q0, the firm charges a price of P0 (because with a price of P0, consumers will demand exactly Q0 units of petrol, which is the quantity that maximises profits). When the government implements its price control at PMAX in this market, the price falls, and the quantity of petrol traded increases to Q1. Unlike in the perfectly competitive market, a firm with market power is willing to satisfy the additional consumer demand at the lower price by selling more. So, if the market for petrol has some market power (which we know it does - it is an oligopoly), a binding price control would induce consumers to buy more, with greater impacts on the climate.

However, that isn't the end of the story. The government isn't proposing a price control on retail petrol, but instead on the wholesale price. The analysis above doesn't quite capture that. So, instead of a price control on a firm with market power, we should be showing what happens when a firm with market power has lower costs (because a lower wholesale price of petrol would lower the retail petrol outlet's costs). This is shown in the diagram below. Without the price control, the firm's costs are shown by the line MC0=AC0. The firm profit maximises with a price of P0, and sells Q0 petrol. After the price control is introduced, the firm's costs decrease to the line MC1=AC1. The new profit-maximising quantity is Q1, and the new profit-maximising price is P1. The firm with market power passes on some of the cost savings to consumers in the form of a lower price of petrol (which is what the government intends), and the consumers respond by buying more.

For a government that has stated that climate change is this generation's nuclear free moment, this seems like a very odd policy choice. However, understanding why relies on having the right economic model in mind. And that would be very important if Welch got his way and we had:

...some robust debate about whether the new Commerce Commission powers are necessary. That will involve asking whether making fossil fuels more affordable runs counter to our climate change goals, and whether we are trading planetary health for short-term economic relief.

Book review: The Premonition

I've avoided reading any books about the pandemic up until now. Truth be told, like most people I did far too much doomscrolling during the pandemic lockdowns, and I wasn't in the mood to re-traumatise myself by reading an account of what we all went through. However, I have seen several people recommend Michael Lewis' The Premonition, so I worked up the courage to crack it open last week. And I'm glad I did.

Lewis' narrative style is engaging, and he makes the characters come alive. Lewis highlights the stories of a number of under-recognised people in the US efforts against the coronavirus pandemic. However, the underlying story is the general incompetence of 'the government', rather than necessarily the people involved in the pandemic response. For instance, at the start of Chapter Four, Lewis writes:

One day some historian will look back and say how remarkable it was that these strange folk who called themselves "Americans" ever governed themselves at all, given how they went about it. Inside the United States government were all these little boxes. The boxes had been created to address specific problems as they arose. "How to ensure our good is safe to ear," for instance, or "how to avoid a run on the banks," or "how to prevent another terrorist attack." Each box was given to people with knowledge and talent and expertise useful to its assigned problem, and, over time, those people created a culture around the problem, distinct from the cultures in the other little boxes. Each box became its own small, frozen world, with little ability to adapt and little interest in whatever might be going on inside the other boxes... One box might contain the solution to a problem in another box, or the person who might find that solution, and that second box would never know about it.

The book is centred on the American response, with precious little reference to other countries. For instance, the American response was certainly a contrast to New Zealand's 'go hard and go early' approach. What this book demonstrates is just how dangerous the game of wait-and-see is, when a crisis is unfolding. As Lewis writes:

By the time people realized that their house was on fire, they needed more than a fire extinguisher.

Despite my initial caution, I really enjoyed this book. It has convinced me that I should really read more of Michael Lewis' books. In this one, the central characters are not those that you may expect before reading. Reading this book is a bit like watching a train crash unfold in slow motion. Fortunately (or unfortunately), we know what the ending is. Lewis does a great job of keeping it interesting along the way. Highly recommended!

When there is a shortage, you pay more one way or another

When there is a shortage, the quantity of a good or service demanded is greater than the quantity of that good or service supplied. There isn't enough of the good or service to satisfy all consumers at the market price. For example, see this post from September last year about the market for shearing services. As I wrote in that post, when there is a shortage the market prices tends to move upwards. However, sometimes the sellers are reluctant to push up prices. Perhaps sellers want to ensure that their services remain affordable for everyone (who can access them, given the shortage).

However, one way or another, the buyers are going to end up paying more. As an example, take this New Zealand Herald story from earlier this week:

Whakarewarewa Village resident Kathy Warbrick would have moved heaven and earth for her dog, Tutu.

So when she arrived home from Auckland one night in August to find the 14-year-old fox terrier missing, she grabbed a torch and went searching in the pouring rain.

"I found him huddled on the neighbour's property. He wasn't responding to me."

Warbrick brought him inside and rang her vet, only to be told it was no longer able to provide after-hours services due to staffing shortages...

Warbrick said she was concerned that other pet owners in her position would have found the cost of a drive to Tauranga on top of vet costs too prohibitive and animals would suffer as a result.

Clearly, there is a shortage of after-hours veterinarian services available. Often, shortages are managed by waiting list. If a pet owner has to wait a long time to access services, then that waiting time has a cost (for example, the pet may be suffering while waiting for treatment). The price of services may not be going up, but the cost of accessing services is. If a pet owner has to drive an hour, from Rotorua to Tauranga, to access pet services, the 'full cost' of after-hours veterinarian services (made up of the price paid for the services, plus the additional cost of accessing the services) has increased.

So, while a shortage may not always cause the price of goods or services to increase, the 'full cost' of accessing those goods or services will increase for the consumer. Either way, it ends up costing consumers more.