Incentive Compatibility Problems

On the mile hike from the Ponderosa Steak House to the Super 8, Manitowoc, I thought about the economics of cross-country bike tours. At the Ponderosa Steak House, we had access to an all-you-can-eat buffet, but no steak or baked potatoes. We could discretely watch the steak-eaters, but it was only iceberg lettuce and steam table mystery foods for us cyclists. At the Super 8, where we have lots of extra time because today is a short day and tomorrow we don't have to leave town until noon, there is no pool or any other apparent form of entertainment available within a mile. Actually, check that. There is a H.O.G. rally at the Top Hat Adult Sports Bar just a couple of blocks away. The band sounded not bad from across the street, and one senior colleague remarked approvingly on the bikini-clad waitresses (observable from a safe distance), but I have a hunch that we wouldn't fit in, even if we are, technically, fellow bikers. To add insult to injury, half of the cyclists ended up in smoking rooms, and ours stinks.

So why do the hotels and restaurants suck? The answer is that America By Bike (ABB) makes more money that way. First, there's the obvious fact that the salad/steamer bar at Ponderosa costs less than the steak (not to mention the cost of a meal at a decent restaurant), and our room at the Super 8 can't cost more than $39. But, there's a second more subtle profit margin: riders who opt out of mediocre meals and lodging save ABB money. Paul and I thought about skipping the hike to Ponderosa, although ultimately hope triumphed over experience. Other riders were more prescient--and that was pure profit for ABB.

On lodging, I learned this morning that no-shows figure directly into the bottom line. Jim from Memphis, an incredibly nice guy, is meeting his fiancée in Niagara Falls, where we have a rest day. They decided that there are more romantic options than No-Tell Motel Niagara (or whatever our Super 8 clone is called that day), so will not need Jim's single room. He offered to raffle off the room, with the proceeds benefiting Partners In Health. That would be a popular raffle among the many who share rooms--especially the "triples," which are actually double rooms with a roll-away bed. Mike said no. ABB hasn't paid for Jim's room yet and they need the money they will save to make the trip pay off. No-shows are part of ABB's formula for success.

This creates what economists call a principal-agent problem. The principals (cyclists) would like to stay in nice hotels and eat good food. The agent (ABB), which makes all the food and lodging arrangements, profits by supplying inedible food and inhospitable lodging. There are limits to how low the agent can sink, because if the food and lodging are bad enough, people would stop booking tours with them, but ABB is fairly clever in terms of how it makes the arrangements. Early in the tour, the lodging was just fine. The first hotel--a Holiday Inn Express in Astoria--was quite acceptable. Obviously, ABB did not want to start out in a hotel that would cause people to cancel on the spot. The food was also pretty good. Even when we ate at a steak house, there were several entrée options including meat, chicken, fish, and a fruit plate. The Kah-nee-ta resort and the Inn at the Mountain in Oregon were actually great, and our first two rest days were spent at reasonably nice chain hotels (with pools and things to do nearby). But by the time we'd hit South Dakota, the standards for both food and lodging had slid considerably. It could be that the organizers were counting on a kind of Stockholm syndrome--we'd become so bonded to our captors (sorry, "ride leaders") that we'd forgive all the abuses of our confinement. Also, by the end of the three weeks, we've become used to all sorts of physical privations on the road (saddle sores, aching joints, burning muscles, road rash, dog bites) so that our standards for treatment at the beginning and end of the day decline. A problem with this theory is that new riders join the tour at various stages and they are not properly indoctrinated. Their potential criticism is muted somewhat by the group-think that the core has succumbed to. The new riders must think that complaining about the hotel is akin to complaining about how grueling it is to cycle back-to-back centuries, something that the coast-to-coast riders have become accustomed to.

In any event, ABB manages to attract 50 riders a year for this tour. Is it possible that they would gain enough additional riders to offset the cost of providing better food or lodging? Lacking data, it is hard to tell. But I wish they'd do the experiment. Now.

Another datum is that Cycle America, the competing supported cross-country tour company, charges not much less than ABB even though CA's lodging is in tents rather than hotels. I assumed that ABB was a much better deal, which is why I went with this tour, but I should have thought about how ABB could be so much more efficient. As my dad used to say, you get what you pay for.

By the way, people who express any reservations are dubbed whiners by Marine Mike. No doubt, our food is better than k-rations and our lodging better than a foxhole.

Notwithstanding the preceding, all is going well. Today and yesterday, I rode analgesic free. The only thing that is hurting is the dog bite, and that hurts less every day. Lacking pain and with very pretty rolling hills and favorable winds, I have had some wonderful intervals of biker zen, simply losing myself in the motions of cycling. It is great. Also, it's supposed to get cooler tomorrow. Who cares about the food?

Cheers,

Len

PS, The picture has nothing to do with this blog entry. It is the entrance to a tunnel on the Sparta-Elroy trail.