“Externalities” are one of the major types of market failure, the term economists use to describe the situation in which some of the costs or benefits of a voluntary transaction are borne or gained by third parties. Sometimes what is called an “externality” might really be something different: a case where property rights to a resource are not well defined. When this happens, it’s open season on that resource, as everyone has the ability to capture the benefits of using it without paying the full cost. Moreover, when you don’t have clear title you can’t sell or trade it. You can only hoard it.
An obviously critical example of such a problem is poolside lounge chairs.In today’s Wall Street Journal, Nancy Keates says (available temporarily to nonsubscribers) swanky resorts are cracking down on this problem rather than clamoring for government intervention:
With the spring-break crush coming, hotels in resort areas are arming themselves with new policies to combat “chair hogs,” the scourge of vacationers who stake claim to prime spots early in the morning and then don’t show up again until after noon. Reversing longstanding procedures to leave guests’ belongings untouched, many hotels now enforce time limits on unoccupied chairs by removing and storing personal items.
They are doing this by removing guests’ personal effects if they are absent for longer than a set amount of time. They don’t limit how long guests can occupy poolside real estate; rather, they limit how long guests can disappear without losing their spots. This is akin to a peculiar parking meter: you can stay as long as you want, but you can’t establish a preemptive claim to a parking space and if you leave you’ll have to go to the back of the queue that’s circling around the block.
Hotels use a a variety of approaches to assign property rights to scarce common properly resources, including the notoriously inefficient practice of allocation by ordeal — which sometimes generates its own externalities:
Until last April, the Royal Hawaiian in Waikiki allowed people to sign up for a chair at 3 p.m. at the pool desk for the next morning. Typically a line of 50 people would start as early as 2 p.m., disturbing the other guests at the pool. Now guests claim seats the same day; if a chair is left vacant for 90 minutes, it’s given away.
Other hotels hold onto these property rights and allocate lounge chairs by price:
“We have 1,800 pool chairs at the hotel but everyone wants the same 200,” says Matthew Hart, General Manager of the Grand Wailea Resort in Maui. “It got to be refereeing adults.” The hotel put in a policy last year that chairs left unattended for over an hour could be reclaimed by the hotel. It also started selling cabanas for $150 to $225 a day up to a year ahead of time. Mr. Hart estimates 80% are now presold for holidays.
This approach has the advantage of efficiency — those who place the highest value on the scarce resource are the ones who get to use it.
Egalitarian allocation also can be effective, but because it only suppresses market forces it invites corruption. Some hotel guests resort to bribery:
Even when rules exist they can be violated. At the Four Seasons Maui, when cabanas are vacant for more than 20 minutes (excluding lunch hours) the staff may reassign them. But Meredith Kaplan, a recent guest and stay-at-home mom from Los Angeles, noticed that people who return year after year make friends with other repeat guests and look out for each others’ chairs. “They stake their claims,” she says.
At the same hotel this past Christmas, Lydia Dunnaville wanted to move to a sunny cabana, so she asked an attendant to take away towels from chairs that had been unoccupied for hours. The attendant refused, saying the 20-minute policy wasn’t always enforced. Ms. Dunnaville called over the pool manager, who gave her the chairs and a complimentary lunch. The next morning, the stay-at-home mom from Portland, Ore., who doesn’t like to leave her room before 11 a.m., got down to the pool at 8 a.m. and saw guests giving attendants large tips which she assumed were to reserve spots.
Tipping heartily works for Great Neck, N.Y., dentist David Schwartz. He estimates he spent $500 taking care of the attendants at El Conquistador Resort in Puerto Rico last Christmas, and every day, when he and his family came down late in the morning, they had a group of chairs reserved for them with ice water, fruit and newspaper faxes. The chairs were theirs all day. “We treat them well and they take care of us,” he says, adding that when you’re paying more than $10,000 for a week, giving the attendants a little extra is worth it.