My eyes glaze over, but what Mike says makes some intuitive sense. Everyone is doing their best to optimize in the interest of the greater good. A rare quality in our world.

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From: Academy of Legal Studies in Business (ALSB) Talk on behalf of Michael O'Hara
Sent: Sun 8/9/2009 8:53 PM
To: [log in to unmask]
Subject: Re: Suggesstion



ALSBTALK:

        Our illustrious former President Reed added both truth and humor to the taking of the oath or affirmation ceremony in 2009 by suggesting it be renamed the "swearing at" ceremony.  Very shortly after the swearing in the swearing at starts.  Does that mean the "real" winner was Dan Ostas? 

        I also am a member of the Academy of Economics and Finance.  http://economics-finance.org/ <http://economics-finance.org/>    We hold our inter-disciplinary meetings every mid-February.  Five things are always certain to be heard at an AEF meeting.  FIRST, what a great group of folks.  In that way AEF is just like ALSB meetings.  AEF meetings are the same size as ALSB, and to my mind that is the ideal size.  SECOND, what damn fool keeps picking a meeting time that starts the Wednesday after Fat Tuesday?  That means solo attendees are usually away from significant others on Valentines Day (to which couple attendees say bring 'em along), and more importantly we keep just missing Mardi Gras.  THIRD, I really like these cheap hotel rates (i.e., room rate never above $110).  FOURTH, do we always have to meet in such obviously cheap hotels?   FIFTH, (since AEF always meets south of the frost line) the weather either is OK or warm or real warm depending on whether there was snow in your drive way before your departed for the conference.  Repeat those five in some cycle until the next round arrives or until some damn fool brings up that excellent paper entertainingly presented in the section scheduled at the same time as your paper. 

        Unless ALSB wants to fundamentally change either [A] its traditionally meeting time (i.e., early August) or [B] its traditionally meeting venue (i.e., no less than four star accommodations), then $170 room rate reflects a very experienced negotiator in the position of Executive Secretary.  Did you notice the legal room rate on the back of your Denver hotel room door?  Yeah, I know, those never are really charged to any one, but I always take a gander at the ratio of room rate paid to legal rate authorized.  Generically, that is somewhere between 20% and 50%, depending upon market conditions.  My room was a $689 room, thus the 20% room rate would be $139 and the 50% room rate would be $345.  On that benchmark, ALSB did very well at $170 (i.e., 25%) with meeting rooms and food included.  Also, take a moment to inventory the amenities just outside the hotel's front door.  Hmm, quite a list.  Sweat deal if you got the bucks. 

        Which brings us to the real question:  budget constraint.  Do you got the bucks? 

        Academe always has exhibited market segmentation of haves and have not.  Relative to some places of employment, I am in a haves school; relative to others, a have not.  I recall at least one painful discussion at ALSB between a member whose salary was half mine and a member whose salary was twice mine.  The former was experiencing a very real budget constraint while the latter was disappointed with ALSB's miserly ways.  That is one reason each market segments.  That regularly attending have not member has not been seen by me at a conference since several years following that painful discussion. 

        Reducing the room rate can be good or it can be bad.  The hotel is willing to let ALSB pick a price, any price.  You want a $1 room rate, no problem, we can do that, yes, we can.   Reducing the room price, however, most often charges the zero price previously attached to other items (e.g., conference meeting room; continental breakfasts and break coffee; etc.). The room rate can go down if you would like to increase the registration fee.  There is no free lunch.  Oh, the plenary lunch is another thing that could be separately priced.  Embedding cost recovery in room rates presents reimbursement advantages, especially for have not schools.  University accountants grouse about room rates while paying reimbursement, but those same accountants tend to reject as not available for reimbursement many separately charged items.  Why do you think dues are part of the registration fee? 

        Rather than merely focusing upon the room rate, I suggest the Executive Committee focus on the total cost of attendance as well as focus on the trend line of research and professional support from employers.  At my first ALSB meeting well over a decade ago, the support from my college was such that ALSB was one of two fully funded conferences I attended that year.  This year, my tax deduction generation for un-reimbursed employment expenses is in the neighborhood of $200.  That is not due to ALSB in 2009 becoming more expensive --relative-- to ALSB in the early 1990s, but due to UNO's budget allocation towards research support having stagnated.  I suspect that UNO's budget constraints are not unique.  I suspect that  salary compression also has contributed some relevant stagnation.   

        Now, if you will, I will play with a little math.  While there are a few moving pieces, the math only is adding, subtracting, multiplying, and dividing.  The driving concept is the average propensity to consume (APC).  You learned about APC in your intro to economics class when you were a sophomore.  The APC decreases as absolute income increases.  That is why progressive taxation is good,   

        The APC for poor folks is high because poor folks spend all of their cash on food and shelter.  Rich folks, even after increasing both the quality of and the quantity of their food and shelter purchases, have more and more money left over as their annual income increases.  To be "poor" is to have an APC of 100% or more; whereas, folks as rich as Gates might have an APC as low as 0.01% of their annual income.  Generally, the APC declines as the level of absolute income rises.   

        Let's assume two ALSB members,  The first ALSB member is #H who is employed at a have university and the second ALSB member is #H-N who is employed at a have not university.  Or, you could use tenure track and adjunct; or, a variety of other pairings rather than have and have not.  Next, let's assume all merit pay raises are given in equivalent percentages for equivalent meritorious output as well as assuming #H and #H-N are equivalently meritorious in absolute terms (e.g., both publish one double blind peer reviewed article per academic year).  Using constant percentages rather than constant dollars magnifies the savable fraction of disposable income separating the two different absolute value nominal salaries.  OK, that last sentence ran by fast and you will want to read it again.  Now that you are back on track, let's look at an example.   

        For the math example, if a have faculty member (i.e., #H) in 1990 had a salary of $60k and a have not faculty member (i.e., #H-N) had a 1990 salary of $30k, and if both received identical 2% per year merit pay raises, and if inflation also was 2% per year (i.e., no "real" change in either #H's or #H-N's 2010 nominal salary over their respective 1990 nominal salaries), and if the pattern of APC was constant from 1990 through 2010 with each additional $5k increase in salary having another $0.2k of savings (e.g., if earn $20k, then have $0.4k more for savings than person who earns $10k); then in the year 2010 #H's nominal salary would be $89.4k and #H-N 's nominal salary would be $44.7k (i.e., #H still paid twice #H-N and the real salary of both #H and #H-N are unchanged); but, now ALSB member #H would have $1.8k more free cash in 2010 relative to ALSB member #H-N.  Just due to the APC, #H can pay for all of the 2010 ALSB conference out of 2010 savings that are greater than 1990 savings; whereas, in stark contrast, #H-N must reduce other consumption in 2010 below the 1990 levels just to pay the first dollar of the 2010 ALSB bill. 

        Fundamentally, ALSB has to ask ALSB who ALSB wants to be and who ALSB wants to exclude. 

        There is no right and no wrong answer to that question except as measured by economic feasibility.  All academic associations everywhere always have to pick price points.  That is unavoidable.  Every price point excludes a fraction of the market.  Higher price points exclude a larger fraction.  As the not excluded fraction of the market shrinks with each increase in price point, the percent of the not excluded fraction of the market that must be captured must increase if the association's annual conference it to achieve break even attendance.  For example, if the market has 100 participants, and if a price point excludes 10% of the market, and if break even attendance is 50 attendees, then that association needs a 56% market share to break even with a 10% exclusion price point.  However, if the price point is raised so as to exclude 30% of the market, then the break even market share becomes 71%.  A price point that excludes so many that break even attendance can not be achieved with 100% of the not excluded fraction of the market dooms the association to bankruptcy.   

        The association's picking of its price point influences its needed market share.  Also influencing the needed market share is its break even attendance.  Also influencing the needed market share are external to the association sources of change in the size of the market. 

        Traditionally, ALSB has had attendance between 200 and 300.  Market share is that 300 divided by the total number of undergraduate law faculty above the price point.  That is, by picking its price point ALSB excludes from its available market all faculty who are so much #H-N that they can not afford to attend ALSB.  The market share includes only those willing to attend from among those economically able to attend (i.e., willing and able).   

        Totally external to ALSB's decisions (and contrary to ALSB's efforts), the absolute number of undergraduate law faculty has been decreasing (e.g., declining number of tenure track lines and increasing number of adjunct FTE).  If ALSB desires to maintain the absolute number of its attendance level (e.g., between 200 and 300), then ALSB must increase its market share.  Additionally, the mix of undergraduate law faculty lines has shifted towards having fewer "research" (e.g., attached to MBA and Ph.D. programs) lines and more "non-research" (e.g., attached to community college) lines.  ALSB needs to increase its market share.  As the professorate ages the relative productivity (as measured by publications) declines (for a whole host of reasons); as the professorate's demand for publication opportunities declines the demand for conference attendance also declines.  ALSB needs to increase its market share.  Regardless of price point selected ALSB needs to increase its market share. 

        ALSB can not wisely pick its price point if ALSB does not understand the income base supporting the funding of its members' attendance at ALSB's annual conference.  There are two primary components of that income base:  [1] university support for travel; and [2] personal income.  I strongly recommend ALSB promptly develop some accurate data on the statistical distribution of [1] university support for and [2] of personal income of undergraduate law faculty. 

        Given the budget cuts and budget uncertainties currently disrupting the conference attendance market, this is a particularly difficult time for picking a price point.  It is safe to say, however, that any price point that is an increase in -real- dollars relative to immediately preceding price points must be coupled with deliberate and --successful-- recruitment efforts which increase market share, or that association could very well enter into a cycle of membership and attendance erosion. 

        I thoroughly enjoyed the Denver conference, and I eagerly look forward to the Richmond and KC conferences. 

Michael

Professor Michael J. O'Hara, J.D., Ph.D.
Finance, Banking, & Law Department
College of Business Administration
Roskens Hall 502 
University of Nebraska at Omaha 
Omaha  NE  68182 
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(402) 554 - 2823 voice  fax (402) 554 - 2680
http://cba.unomaha.edu/faculty/mohara/web/ohara.htm <http://cba.unomaha.edu/faculty/mohara/web/ohara.htm>