A cup of coffee and the Tragedy of the Commons

A potential crypto application

Every morning I practice my French with the owner of the cafe underneath my apartment. It’s cozy, filled with art and regulars having coffee and maybe a croissant before work. Usually I can only manage a few intelligible sentences, but he’s patient with me, and doesn’t speak much English which forces me to recall the extent of my French vocabulary. I usually take my cappuccino to go, pay with exact change (1 euro) and wish him a bonne journée before walking to the metro.

Today I rain out of coins, and paying via credit card can be frowned upon (either because of financial inconvenience or time I’m not sure why) so I paid with a 10 euro note. And to my surprise I had gotten a 5 euro note, and 5 euros back in coins.

I had my first free coffee as a regular.

And throughout the day I’ve been feeling validated. Sometimes in a foreign country where you don’t speak the language, don’t have very many friends, and don’t know a lot of the social intricacies, it can feel like you’re not exactly welcome. But a free coffee to me is acceptance. It’s a “hey you live upstairs and I like your dumb American smile every morning, this one’s on me.”

It made my day.

This is really the first time I’ve felt connected to my community. I moved states when I was in middle school, and in both neighborhoods of individual, well spaced out houses growing up I knew of my neighbors, but didn’t really have conversations with them. Then at Penn State, one of the largest undergraduate bodies in the nation, it was normal to only have brief interactions with classmates, often as short as a semester before it was onto the next class. Then, in Houston, living in two different apartment complexes I never once made friends with neighbors I didn’t know ahead of time.

Compared to yesterday, I walked into the cafe to practice my daily bit of French, then walked past and waved hello to the bakery girl who helps me order interesting French pastries, and then said hello to the gym owner who always wishes me “à bientôt” as I leave which means “see you soon.”

In such a big city you get the feeling that people are really connected and work, live, eat and drink in their neighborhoods.

And it’s nice. I never got a free coffee at the chain coffee shop I lived across the street from and frequented in Houston. Maybe the difference is the culture, or because it’s everyday, or have the personal connection, or whatever reason. But the more I thought about it, it just seems like a good business practice.

During undergrad I worked on the Tragedy of the Commons problem. The dilemma that a common pool resource, if used fairly would be sustained, overuse by few would be negligible, and overuse by everyone would be exhausted. An example is overfishing in an ocean. If everyone fishes their fair share, you can feed populations for generations. But if a countries overfish, you’ll start to drain your stock.

To be a tragedy of the commons, the individual incentive to defect (overfish) is greater than the collective social cost to the group. So if you are a fishing company, you have a short term incentive to overfish and turn a quick profit, at the expense of long term profits and sustainability. It’s an optimization problem. You might think that the quantity supplied by the firm is the productive capabilities where the marginal benefit equals the marginal cost. But it’s not, it’s less. Doing so would lead to overfishing (at least in theory. I’m not an expert on the fishing industry).

If I’m a perfectly loyal coffee consumer, I may have no complaints and pay my euro for a cappuccino every day. But one day, maybe I run through my coffee budget. Or I get bored and try another cafe. If I get a free coffee every now and again, I’m certainly more interested to continue to only consume at that particular cafe. That is, as a price setter, the owner isn’t overfishing. He’s providing a subsidy to ensure his clientele stays loyal, or stays in the ocean.

This is almost unimaginable for large companies in the US, at least in my experience. The only thing similar I can think of is the Starbucks rewards, which, I almost always forget to use and let expire. It’s more of a gimmick than a good faith loyalty reward.

The tragedy of the commons is a tragedy because there’s no solution. It applies to climate change, policy setting, the bystander effect, and vaccines. Some of the most difficult, and topical, problems we face today.

Typically, price setting isn’t thought of as a tragedy of the commons. But why not? The individual incentive to price gouge is certainly larger than the collective social cost against my budget each month (which is finite).

Here, we might think to apply cryptocurrency. After all there would be a record of your transactions, which could automatically credit your account after a certain quantity purchased. There’s no gimmicks, no remembering to apply your Starbucks stars, and it rewards loyalty. It builds capacity for price setters to offer specials, discounts, or rewards automatically. There doesn’t even need to be a currency, just the digital ledger. It could help supply chains, the consumer, and potentially lead to more connected communities.

For now, don’t overfish. You might make some dumb Americans day.