Economics of Sharing

A large quantity of university students live in shared accommodations. They pay the rent independently and usually share the bills (which usually include electricity, gas, garbage collection or Internet access fees) with their flatmates. As a sharer of the bills, will you tend to consume more goods and services in the bill list or less (which, of course, do not reach the peak of the marginal utility curve) since you only need to pay a portion (probably not a large portion) of the cost.

It seems a rational decision to consume more because you own the whole utility gained from the consumption but only need to pay part of it. Suppose that you have 3 flatmates and the price of electricity is 1 euro per KWh. If you use the electrical appliance, which consumes 1 KWh of electricity, you get the benefit which is worth 1 euro, but you only need to pay 0.25 euro for it. Does it mean you earn 0.75 in this transaction? But we should consider the lost which may issue from the increased consumption by your flatmates due to the same consideration (do not forget you are the loser in their winning transactions based on the same theory). 

This is the economics of sharing. The key feature of the phenomena is that a portion of the cost of your consumption is paid the others, and you pay for a portion of the cost of their consumption. They cannot control the cost they pay for you and analogously, you cannot control the cost you pay for them. This is an interesting issue needs further thinking. Maybe we can get some inspirations from the game theory.

Economics in Student Rambler

Student Rambler is widely used by students in Dublin. Swiping this card on the smartcard reader, the holder can travel an unlimited number of journeys on Dublin Bus. The current price of a 30 Day Student Rambler, which is valid for 30 calendar day, is €82.00. So, averagely, the one-day cost of the ticket is €2.74 regardless of the time value of the price of the ticket and the convenience gained from no need to prepare small changes. If the journeys you travelled in a day worth more than €2.74 by paying changes, you will be better off through using Student Rambler. If you travel more, you will gain more. The benefit you gained over the price of Student Rambler has the quality of economic rent, which can be regarded as the "excess returns" above "normal levels". The amount of the economic rent of Student Rambler here is the difference between the actual benefit you gained from using it and the opportunity cost of it, which can be considered as its price. For instance, a round trip between UCD and City Centre costs  €3.3( a single fare is €1.65), which is the actual benefit you gained if you use Student Rambler in a day. While the price of the Student Rambler, as mentioned above, is €2.74 per day. Thus, the economic rent is €3.3 - €2.74 = €0.56. The amount will increase as the value of the journeys you travelled and is irrelevant to the price of Student Rambler.

There is also economics on the choice of using the Student Rambler or paying cash. Take my experience for example, I travel to and fro between my house and UCD every day. The price of a single journey is €2.3. Since I can save €1.86 (2.3*2-2.74) every day, buying a 30 Day Student Rambler is a rational choice for me. One afternoon when I planed to come back home, I found I had forgotten my Student Rambler, which I had used in that morning, in the office the time I got into the bus. Since my office is 15-minute walk far away and I did not want to miss the bus, I decided to pay cash(€2.3) for the journey. I thought I just lost the value of what I paid when I made the decision, but the story did not end there. Next morning, I needed to pay another €2.3 to travel to UCD(remember my Student Rambler was still in the office). And the point is, when I came back home that afternoon, I still should pay cash for my journey rather than use the Student Rambler, although I already had taken it with me that time. The reason is the cost of the Student Rambler (€2.74) is higher than the price a single trip ticket. The benefit is that I saved the one-days cost of Student Rambler. Therefore, my total loss of decision of not fetching the Student Rambler on the first day is €4.16 (2.3+ (2.3*2-2.74)), which is much more than what I thought. The decision to pay cash for the journey when I already had got the Student Rambler when I went back the second day involves the sunk costs, which refer to the costs that have already been incurred and cannot be retrieved. These should not normally be taken into account when making a decision, because they cannot be recovered either way. It is a common instinct to count them, however.