Fresh Bagels Hot Off the NBER Press

A while back, Levitt and I wrote an article about a former economist in Washington, D.C., who sells bagels and donuts on an honor-system payment scheme. We later adapted that article for inclusion in Freakonomics. Now Levitt has posted a National Bureau of Economics working paper that looks at the Bagel Man’s profit maximization, an important element that we didn’t look at previously. (We were focusing on honesty and theft.) Here’s the money quote:

Using thirteen years of data representing more than 80,000 deliveries, I find that the company is extremely adept at determining how many bagels and donuts to deliver to a particular customer on a given day. In stark contrast, the company appears to price on the inelastic portion of the demand curve for the entire period, thereby foregoing a substantial share of available profits. I argue that these results generalize well beyond this particular case study: firms are likely to be close to the efficient frontier on dimensions for which there is frequent and informative feedback regarding profits, but absent that feedback, systematic deviations from profit maximization are more likely.