The principal-agent model arises when an agent, which could
be an individual, company, or any other party agrees to work for a principal,
which could also be an individual, company or other party, for some form of incentives.
This agreement in theory works perfectly, but tends to be interrupted by moral
hazards or conflicts of interests where the agent works more in favor for
themselves than for the principal. The problem of self-interests can lead
agents to manipulate the system to benefit themselves more than the principal
could be benefitted. This is where the problem of the principal-agent model
occurs. Instead of researching an example of this online I have a real life
experience where this issue plays a huge role in every day work.
I, like most others am a broke college student. No matter
how much money you think you have in life, it all seems to go right out the
door once you come to college. To combat this issue, I got a job on campus. The
job I found was at a local bar. I started there as a doorman almost two years
ago and at first the pay was very bad. Almost to where the job wasn’t worth it
at all. I stuck with it and worked a lot so that I finally became a bartender. I
hadn’t realized this problem until I had become a bartender. So the pay is not
very good for bartenders, but you do make tips. It just so turns out that about
90% of the money you make at the bar is your tip money, not your actual wage.
After bartending a few times fellow co-workers told me that if you want to get
more tips you have to charge people less. I had never thought about this, but
it makes sense. People do not want to buy expensive drinks at the bar,
especially broke college kids like me. So this is where the moral dilemma arises;
shorting the bars income will increase mine.
I am not a firm believer in doing this because the loss of
sales really doesn’t account for the small increase in tips that I receive so I
do not really buy into it, though others do. It is a huge conflict of interest
though; you are making the bar lose money for your own personal gain. It reminds
me of the casino situation that I read about. Card dealers would help customers
win hands because winning customers are more likely to tip. This would then
turn into the same type of situation that I face at the bar, but on a much
bigger scale. Instead of shaving a dollar or two off of a sale of alcohol, they
are helping people win large amounts of money from a casino.
I do believe that the principal-agent model is very
important in understanding why people do certain things while they work. I would
say that some of these things have a lot bigger of an impact than other things,
but overall it comes down to an individual’s morals. I believe that shorting
the bar that has employed me for almost two years is wrong so I try to keep my
sales as honest as they can be, but I know for many people they just want as
much money as they can get their hands on. To solve the problem of this happening
I think that the bar could pool tips with management so that people are less incentivized
to be out for their own good, but I still do not know how much this could
solve. I am sure that if there was a better way to do it, we would be doing it.
What you are talking about amounts to employee theft, which is definitely an issue. I wonder how this works, however. Don't you ring up each drink order in the cash register? In other words, to make full sense of your story you need to discuss how the establishment monitors (or doesn't) bartender activity. Also you might consider what would happen if they caught you doing this.
ReplyDeleteNow, way back when, 20 years ago or so and I was implementing online technology in teaching a large section of intermediate microeconomics, I hired students to do a lot of the work. One of them also worked at Espresso Royale, the one on Sixth and Daniels. When I would go there and he was working, he'd give me my coffee without charge. I always thought of that as a charming way for him to indicate that he endorsed the work we were doing. Until now, I had never thought of it from the point of view of your story.
So I supposed the owners at Espresso don't monitor how many coffees they sell versus how much coffee they brew. There is probably spillage. There is probably sometimes the people inadvertently make the wrong drink and just through it away. Maybe sometimes the staff drink a coffee while on break and don't pay for it.
The last thought, it occurred to me, might also be true at the bar. Owners could expect that employees will drink, either during their shift or after, and not pay for that. If so, that would give you some leeway to convert drinks to tips the way you described without getting ownership too upset about it.
My sense is that bars in town are quite profitable enterprises. So a little bit of what you describe would mean less profit, but it wouldn't mean losses. You might price out how many drinks in a bottle of whiskey brand x, what those drinks cost at the bar, and what that bottle costs wholesale or even retail. I'm guessing there is quite a markup.
Finally, on your last paragraph, if the bulk of the staff are students, there will be a lot of turnover, just because students leave town sooner or later. In high turnover jobs, the solution to what you talk about may not really exists. Casinos might have more permanent staff and be able to solve the issue differently (high base pay, for example). It is something to consider.
to answer the first part of your comment, most people just neglect to ring up the drinks that they give to people. so if someone would order 4 drinks they would charge them for 3. the bar has inventory on each bottle of alcohol but when it comes down to the drink to drink inventory it is very hard to regulate when a few drinks go missing. the establishment also has a zero tolerance policy on giving away discounted drinks unless approved by a manager, so those who have gotten caught have been terminated. it is still very hard to catch these people and to my knowledge some people still do it. also to mention from your last comment, nearly the entire staff is college students, so it may not be feasible to try to find a new solution when its only a few bad eggs a year.
DeleteI am going to answer a few of Professor Arvan's questions as I too have worked in a bar here on campus and understand the system quite clearly.
ReplyDeleteThe bars try to monitor the amount of drinks we serve, but realistically they know we are serving our friends at discounted rates, but since the alcohol they buy is so inexpensive ($3 a handle), they let it slip. If students had to pay full price drinks at the bars on campus here, the bars would make no money. Students cannot pay $4 a drink, especially when they are diluted.
Additionally, spilled drinks, broken bottles, cases falling, all those things can account for these free drinks and the other thing is upcharging those who are not your friends and who do not pay attention to how much drinks really cost. Employees are not allowed to drink in certain bars on campus while they work, but when they are not working they get free drinks.
The bars on campus are actually not as profitable as you might think, I was at a meeting last year where so many free drinks were given out we were actually $16,000 under what we were suppose to be and the owner did experience some sort of loss.
At the end of the day, students are going to get as much in cash tips as they can. I would let people "dirty tip" me $5 and I wouldn't put their tab over $6 for the rest of the night. There is 100% moral hazard in this and values I assume too, but when you're working for a crook and a snake, I did not feel much remorse for taking more than I should have from the bar.
I do not work at a bar nor have I but I find this example to be extremely engaging. I wanted to intially highlight that the principal-agent problem does hold a fairly significant explanation for how individuals act at work. Let's take bartending as an example. While bartending, you have an obligation to your managers (principal 1) to bring in a respectable sales number and an obligation to satisfy the customer (principal 2). If you are serving randoms, you are much more likely to charge full price. Thereby, your manager will be satisfied that you brought in revenue for the bar. Conversely, if you are serving your friends, you will probably want to provide them with as small a tab as possible. Regardless of the situation, one principal suffers while the other profits because you act in self-interest. Neither option is necessarily bad but I believe it validates the notion that self-interest plays a role in how people behave in a work setting.
ReplyDelete