Wednesday, August 12, 2009

Asymmetric Information & Parenthood

I've discussed the economics of babysitting in the past. Basically, we parents are so desperate for baby-sitters that the teenagers have us over a barrel - hence the steady rise in price for baby-sitting services.

The one advantage that adults have is that the teenage babysitters don't recognize their own market power. But a wise commenter pointed out:
Better watch whose hands this information might get into. As the father of a babysitter, I'm just saying...

Also, you might want to warn people that sitters with older siblings have a very good idea of the market. So watch out.
The only advantage we old people have is based on asymmetric information - that is they don't know what we will pay and act as price-takers. If they truly formed a cartel, then they could be price-makers and we would be at their mercy. There are limited substitutes (duct-taping kids to the wall while we go out is cheaper but could result in fines or imprisonment - which carry high opportunity costs). My commenter points out that this process has already exists between sisters. This is an old story - King Lear, to be specific, in which a pair of sisters depose their aged father... I'm just saying...

Broader Implications
But this discussion got me to thinking that asymmetric information is really central to parenthood itself. This is what we've got on them. They can't read so we can tell them what is and isn't on a restaurant menu (for example.) They don't know that I won't really let them run away or that there are no dental police that will haul them off if they don't brush their teeth. (Those old Crest commercials have come in handy!)

They don't know that they toy store isn't really closed or that I can in fact afford whatever thing they want - I just don't want them to have it.

It isn't that they aren't smart - within their limited range of experience children quickly develop models of how the world works. Once, when I told my then three year old son that I didn't have enough money for something he wanted he said, "Yes you do, you have money."

"Not for that."

"No, I saw, the money from the pizza man."

He didn't understand change (he doesn't always handle the other sort well either) and just assumed grown-ups transferred cash to each other under some arcane rules.

But there are huge realms of information that they are simply unaware of and I can always draw on these vast unknown realms to re-direct their demands.

As they get older and understand more, my abilities to rule through information dominance will decline. They will know that I can get money from the ATM anytime and that computers do not actually bite if they don't get enough sleep. They will learn to operate telephones on their own (although other, more useful, appliances like dishwashers and vacuum cleaners will undoubtedly remain mysterious.)

But then they will make their way into the great wide world, where they are pummeled by information asymmetry. Hopefully, my parenting strategy of lies and deception will have properly equipped them for this cold harsh reality.


The Chief Weeder said...

"If they truly formed a cartel, then they could be price-makers and we would be at their mercy."

Umm, the girls have all read the "Baby Sitter Club" books by the time they start putting their grubby teenage hands out for your cash. I'm afraid that knowledge is already out there.

Which raises the question: "Why don't they form more Baby Sitter Clubs?" The answer is left as an exercise for the reader. (Because I don't know.)

And remember that Lear has one good daughter. I'm not saying which one it is...

Father Goof said...

A formal cartel might lead to transaction costs - plus the limits on their mobile minutes and texts reduces their communications.

Lear did have one good daughter - which is an excellent case for having three kids - it makes for an unstable power bloc.