## Valuation of Parking Space

There’s a unique problem in my apartment building – the building has been built with provision for only seven parking slots in the basement but each of the nine houses here has been allotted a slot, which means there are two obstructing slots. Unfortunately, my slot is at a location where I get blocked by the car belonging to the guy upstairs and so I’m a directly affected party due to this problem.

Currently I’ve managed to get around this problem by parking my car in some corner of the basement but neighbours are cribbing saying it spoils the “look” of the building (as if the look of the basement matters! ).

Coming back to the problem, I was wondering if there exists a solution. Clearly, the shape and orientation of the basement means that not more than seven cars can be parked there in a non-obstructing manner. Now, since every houseowner here was allotted a slot when the building got built, they are entitled to a slot so it is not feasible to request/tell someone to rent their house to someone who doesn’t own a car (2 bedroom houses with parking slots cost some 2 kilorupees a month more than those without parking slots).

Thinking about it, the only solution I realized is by trading a parking slot among affected parties. For example, the slot of my house (B1) is obstructed by the slot belonging to the C2 house. Now, what if my owner tries to buy out C2’s parking space? He can either buy it out outright or he can pay the owner of C2 a monthly fee in exchange for C2 not letting out his house to someone with a car.

And he gets compensated for this by charging a higher rent from me (note that if my landlord buys out the c2 slot, I effectively get two slots, since both belong to me, there is no obstruction). The key to this, however, is the relative pricing of various parking slot combinations.

The key equation is this: if Pn is the monthly rent of a house in this building with 2 bedrooms and n parking slots, then there is a profitable trade between the owner of my house and the owner of C2 if and only if:

P0 + P2 >= 2 P1

If the above equation doesn’t hold, the amount by which my owner gets compensated (by me) for the second parking slot will not suffice to pay the owner of C2 to not let out his house to someone with a car, so the trade I described above cannot take place.

But then, according to Coase theorem, irrespective of initial allocations (here C2 has a parking slot that blocks B1’s slot) there exists a trade in which each party gets the desired outcome. Is there a contradiction with the equation I’ve written above?

Now, thinking about it, the value of both my house and C2 is not actually P1 but a number P1′ which is less than P1. P1′ takes into account the pain of having an obstructed parking slot (I get pained because I can’t take out my car when I want; C2 gets pained because I disturb him every time I want to take out my car), and so effectively both my house and C2 would be overvalued if we were paying a rent of P1.

And if we take P1′ into consideration rather than P1, I’m sure the following equation holds:

P0 + P2 >= P1′

The only other problem here is that when taking a flat on rent, you are unlikely to check for details such as if your parking space is blocked, so it is likely that the deal will take place at P1 rather than at P1′. However, once you move in, you figure out the pain and the owner of the apartment will feel the pinch when his tenants clear out at a rate faster than he would’ve expected which ends up reducing his long-term average rental income. And the deal I described above will take place if and only if he figures out why the fair value of this apartment is P1′ and not P1.

This 7.5 minute break in the middle of an IPL innings is a bad idea. The biggest problem is that everyone knows the exact length of the break, and can use it to do stuff – like cook, or clean, or crap, or fag, or maybe watch the Everton-Man U shootout. 7.5 minutes is a lot of ad time, but the problem is that absolutely no one will be watching them. So if you were a smart advertiser, you wouldn’t want to put your ad in that slot – you are better off taking an over break slot.

Now what I propose here is not applicable to cricket – at least I hope it’s not since conventionally you can’t slot ads whenever you want to (Lalit Modi thinks he can change that, though). I don’t know if this concept has already been implemented, and I’d be rather surprised if it hasn’t been. The basic idea is to randomize the length of advertising slots.

So you are watching your favourite soap and there’s a commercial break. And you go off into the kitchen to make a cup of tea. But you don’t really want to miss even a minute of the action, so you’ll go only if you know that the advertisements will go on for two minutes. Historical data tells you that the ads will last for two and a half minutes, and off you go. Now what if suddenly tomorrow there is only twenty seconds of advertisements and you end up missing a bit of the action? You curse yourself, and the soap, and the TV channel, and the TV, and Tata Sky, but you make a mental note not to go make tea during this break the next day.

Now, by randomizing the length of advertising breaks, channels can ensure that people actually watch the ads. If you don’t know if the break will last twenty seconds or two minutes, you are likely to sit glued to the TV, watching the same channel dishing out the ads. You are unlikely to go off to make tea, or to crap, or to channel surf, if you don’t know when programming might start next. You occasionally get pained – when the breaks are too long – but on the whole you end up watching most of the ads.

Yes, there is the chance that the viewer gets pained when the random length for ads that gets picked turns out to be really large. Also, if we shorten a few ad breaks, we should also lengthen a few others? Or increase the number of ad slots? Not really – is my argument.

The clincher here is that by randomizing length of ad breaks, you are increasing the TRPs for the ads! Yes your program may have high TRP but does that normally translate to ads? With this randomization procedure it does. And when this gets established, you can start charging higher for these slots. And if on an average you can charge a higher rate per second of advertisement, you can sure continue to run the program with a smaller number of ads?

It’s win all around. Customer wins because he gets more programming time than ad time. Advertiser wins because he gets more eyeballs for his ad. TV channel doesn’t lose since the loss of revenue from lesser number of ads is more than made up by the higher rate charged on the ads. In fact, by “holding” the customer, the channel ensures he continues watching this program rather than go off on a tangent while channel surfing.

Normally, I try to show situations where everyone can win by reducing the randomness in the system. This case is opposite. By introducing randomness in the system, everyone wins! I wonder if there is a fallacy here. Or maybe what I’ve written here is so obvious that everyone is implementing it and I’ve failed to notice since the only TV I see is sport (not american sport) which has fixed ad breaks.