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Choice matters: an economic parable

Lately I’ve been thinking about the role of choice in transport and housing. People often underestimate the power of choice in these particular markets. But it’s important to have options – even if someone wants to drive 90% of the time, having the option to take the bus or cycle instead the remaining 10% of the time can make them better off. Morever, even if taking the bus isn’t a good option for you, it might make your neighbour (or your children) better off.

Perhaps it’s best to illustrate this point with a parable. Picture your neighbourhood shops. They might have a post shop, a drycleaner, a dairy, and a couple restaurants or takeaway joints. Basically, businesses that provide services to local residents.

Imagine, for a moment, that your neighbourhood shops have only two eating options, both of which are fish-and-chip shops. If you’re too tired to cook dinner for yourself after a long day of work, and you don’t want to drive to a bigger centre, your options are limited to fish and chips.

Now imagine that a new restaurant is opening up in the neighbourhood. Would you prefer it to be:

  • A third fish-and-chip shop, which would compete directly with the existing takeaways and maybe bring down the price of a snapper fillet by twenty cents, or
  • An Indian restaurant, which would offer you an entirely new option for dining out?

I think most people would choose the Indian restaurant, hands down. Having more dining options would be good for local residents. Even if they continued to get fish and chips most of the time, the Indian restaurant would be available as an alternative when they couldn’t stomach any more greasy chips.

(Incidentally, I didn’t choose this example at random. Auckland is now a fantastic city to dine in, due to the abundant choices of cuisines that recent migrants have brought to the city. But it wasn’t when my parents were young – it was fish and chips, meat pies, or nothing. Increasing choice has revolutionised the restaurant market.)

At the moment, Aucklanders have constrained transport or housing options. For many trips, driving is the only feasible option. For most households, living in a detached three-bedroom house is the only option on offer. But these options aren’t always well suited for all trips or all households.

Successive governments have tried to improve our wellbeing by, basically, opening more fish-and-chip shops. That means widening roads or duplicating them rather than adding bus lanes or protected cycle lanes. It means building new subdivisions on the edge of the city rather than allowing terraced houses and low-rise apartments to be constructed in existing suburbs.

Our transport budget? (Source)

Our transport budget? (Source)

Aucklanders would be much better off if we had more choices about how to get around and what type of home to live in. Policymakers could stand to take a few examples from the restaurant market.

17 comments to Choice matters: an economic parable

  • Nik

    Thank you for a simple analogy that I can use to explain why Public Transport isn’t a zero sum game to friends who don’t understand why I get animated when I talk about it.

  • Damn you forcing me out of my fish and chip shop. Aucklanders LIKE only having fish and chip shops. It’s part of the Kiwi lifestyle. Taking away fish and chip shops is ripping out the very heart of Kiwi identity. Also 99% of Aucklanders go to fish and chip shops – obviously we need more. Besides I’ve never tried Indian food so I know I won’t like it.

    • Peter Nunns

      And we all know how Kiwis are totally unwilling to try out unfamiliar new options. I mean, look at all those fools who lost money trying to start Asian restaurants. Oh wait…

  • Greg N

    Same goes for housing choice as well.

    You could say that coffee shops are in the same vein – if you had a choice of 2 local more or less identical coffee shops in your neighbourhood, would you want a third opening up that was just another one serving the same coffee and options at similar prices? Oddly enough the coffee shop chains seem to think so.

    Taken to its ultimate, you could end up with a entire area full of nothing but Starbucks – something which the Simpsons actually parodied years ago, their local mall became filled with nothing but identical side by side Starbucks on all levels.

    Would never happen with housing choices here, though, would it? Oh wait…

  • One of the many unappealing features of shopping malls for me is the repeatition of the exact same stores from the exact same chains offering the exact same dreary offering.

    Apparent choice; but actually no choice but blandness.

    No alarms and no surprises. Please.

    • To have more stores variety, we need higher population density near the shopping malls, so the mall can serve more people and has larger scale.

      To have specialized malls, we need more efficient long distance mass transport that covers a large geographic area, so malls can compete with each other. Then, some malls will be server niche customers.

    • Warren S

      Patrick – I can certainly agree on the blandness of shopping malls, particularly big Westfield malls and find it hard to understand why they are popular as they seem to be. I guess the safety factor once one has negotiated the inevitable massive carpark and the shelter factor when safely inside is also important, particularly on inclement days. However our town city roads and strip shops are also losing individuality as the retail chains gain power. It has certainly long ago happened in U.K. high streets. Not sure how you can stop this agglomeration of retail power or if one should? I guess if one looks back the powerful don’t always retain their premier position for ever as new generations, technologies and entrepreneurs emerge.

      • Most people seem to attribute the success of malls to one or two factors: masses of free parking and protection from weather. Personally I think there is at least one more major one: no cars. Once you are clear of the parking lot the shopping environment is entirely pedestrianised, not a car, truck, bus or service vehicle to be seen. No crossing the road, no dodging dodgy parkers, no snaking past window-shoppers while trying not to step into the street. You can shop, eat, drink and socialise in a people-only space.

        I think the main success of malls is attributable to the fact they are car free pedestrian-only spaces.

  • That’s why we should have a toll road alternative to the free road. In that case we have the freedom of choice. Some people choose to pay money to get faster access, but for those who doesn’t pay, they can still get same or better service (better service as some traffic is diverted to toll road). Both people are winners.

    If we want all roads to be free, then we cannot finance them, so nothing is built.

    • Warren S

      Ok – So long as the taxpayer or rate payer doesn’t have to pick up the pieces if these duplicate roads go broke – paying once is enough!

    • Peter Nunns

      If tolls roads collected enough revenue to pay for constructing, operating, and maintaining them, I would agree. But recent examples are not heartening. Private toll roads in Brisbane have failed in dramatic fashion, as has a council-owned toll road in Tauranga.

      In this context, I’m not sure whether there is a benefit to duplicating existing roads, whether or not a toll is imposed.

  • Barney

    I am probably missing the point of you analogy but pushing on with my story, in my neighbourhood there are three local shopping blocks.. Between them they can rustle up dairies, hair salon, asian/english bakeries, pharmacy, Asian takeaways, Laundromat. Your typical Auckland local shops. However I can only access them by car because the route of the normally quite good local bus service goes off on a tangent on a huge circle like a lasso rounding up everything in the neighbourhood. To patronize these shop you have to either bus one way, to there or return, and walk the other way. Otherwise you must complete the buses circle and get the bus going in the opposite direction. It is all far too complicated and takes far too long so I don’t bother. It is simpler to local shop in Queen St and much quicker and have a night out while you are at it. So that’s my choice.

  • thmslcn

    Why bother opening a third fish and chip shop when we could just make one of the existing ones bigger?

  • mfwic

    The problem with the Auckland transport situation is we have lots of fish and chip shops but they are all free so people who dont really need fish and chips but dont value their time get up early and queue for fish and chips while those who really need fish and chips can’t get them! At least the real fish and chip shops (not the road analogy) charge a market price so the people getting the fish and chips are those who value them.

    • Exactly. Meanwhile the Indian takeaway (public transport) isn’t free, is only open once every 30mins, customers have to queue in the same space as the f&c customers and it doesn’t have a big enough shop for all its customers.

      And so for some strange reason everyone still wants fish and chips. Of course the fish and chips aren’t free either but the costs are so well hidden that everyone thinks they are.

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