The "Free" Trap: Why Your Fallowfield Kitchen is Full of Regret

 

Figure 1: Supermarket “Buy One Get One Free” (BOGOF) promotion using prominent yellow price framing.

Source: Google Images (2026), search term “BOGOF supermarket UK”.

 

The Hook

Imagine it is a rainy Wednesday evening in Manchester. You walk into the Wilmslow Road Lidl needing only one thing. But a shiny yellow sign intercepts you with a Buy One Get One Free (BOGOF) offer. Minutes later, you are at the till with two packs of pasta, a higher total bill, and a sense of confusion. This everyday scenario reflects a national issue. In the UK, supermarkets are facing intense pressure from environmental charities like WRAP to cancel BOGOF deals, which are blamed for contributing to 10.7 million tonnes of national waste (WRAP, 2023). Why do we keep falling for it? The answer lies at the intersection of microeconomics and human psychology.

 

The Rational Baseline

To understand why we fall for these deals, we must look at the traditional economic benchmark for human behaviour. In standard microeconomic theory, we assume that consumers are rational agents, sometimes nicknamed Homo Economicus (Varian, 2014). This version of a human acts like a logical computer that only cares about marginal utility, which is extra satisfaction gained from consuming one more unit of a product.

When this rational robot sees a BOGOF sign, they do not see a gift. They see a mathematical requirement to buy two units at a 50% discount each. If they only need one pack of pasta for dinner, the second free bag has zero marginal utility to them. Because the rational agent is perfectly efficient, they would rather pay the lower price for a single bag than spend more money to get two. They are immune to marketing tricks because they focus strictly on their actual needs and the unit price.

 

The Realisation: Why Free is a Psychological Magnet

However, most of us do not shop like robots. Behavioural economics teaches us that humans have bounded rationality, meaning our decision-making is limited by our emotions. This is where the zero price effect comes into play. This is systematic bias, where the presence of a free option completely distorts our ability to think clearly.

When a price drops to zero, it is no longer just a low price. It becomes an emotional trigger. As Dan Ariely (2008) explains, "free" creates an emotional charge that makes us perceive the benefits of an item as much higher than they truly are. In a famous experiment, consumers were offered a choice between a high-quality Lindt truffle and a cheaper Hershey's Kiss. When both had a price, most chose the Lindt. But the moment the Hershey's Kiss became free, the majority switched — even though the price difference between the two remained exactly the same (Shampanier, Mazar and Ariely, 2007). "Free" is a psychological magnet that overrides original consumer preferences. In the context of BOGOF, our brains stop calculating the actual cost and start focusing on the excitement of receiving a gift.

Weaponising the Trigger: The Art of the Frame

All of this depends on how promotional offers are packaged, which is a concept known as the framing effect. Nobel laureate Daniel Kahneman (2011) notes our brain operates at two speeds, including the fast, impulsive System 1 and the slow, meticulous System 2. Imagine you are in a supermarket. A 50% off sign on the pasta forces your brain to do the maths and activates your System 2, which asks if you actually want to spend money on this right now. However, a BOGOF feels completely different. It is framed as a pure, shiny gift.

By framing the second bag as a gift, the supermarket slips right past your rational defences. Once the offer is framed as a guaranteed win, another trap emerges called loss aversion. Behavioural economics tells us that the pain of losing something is roughly twice as much as the joy of getting it (Kahneman and Tversky, 1979). You feel you are “losing” a free gift if you walk away. Once placed in your trolley, the endowment effect kicks in, creating a sense of psychological ownership that makes it nearly impossible to put back (Kahneman, Knetsch and Thaler, 1990).

 

The Hangover: Why Your Gift is a Global Problem

When that extra bag of pasta sits in your cupboard for a year, it stops being a personal bargain and starts being an economic disaster. In a perfect world, resources are only used to make things that people actually value, which is known as allocative efficiency. However, the free trap creates a massive market failure because it tricks us into taking goods we do not actually need.

This impulsive shopping creates a negative externality. While the supermarket makes a profit and you feel a temporary win, society bears the hidden costs of the water, energy, and labour used to produce, pack, and ship that wasted pasta. This stems from asymmetric information (Akerlof, 1970); the retailer understands your psychological biases better than you do, using that information to clear stock at your (and the environment’s) expense. This leads to deadweight welfare loss, where the “gift” reduces the total well-being of society.

The conclusion

So, how can we escape the BOGOF trap? The key is learning to de-bias our brain before our impulsive System 1 takes over. Next time you see the shiny yellow sign in the shop, ask whether you would still buy two if it were simply half-price. If the answer is no, leave it on the shelf. 

Figure 2: SU Essentials at the University of Manchester

Source: University of Manchester Students' Union (n.d.) essentials Available at: https://manchesterstudentsunion.com/essentials/the-pantry (Accessed: 17 April 2026)

 

Wait, what about when "Free" is actually for a good cause? Programmes like the SU Essentials at the University of Manchester offer free groceries to support students through the cost-of-living crisis. While this is a vital financial lifeline, does the zero price effect still lurk in the background? Even when items are provided by the SU, could the lack of a price tag encourage us to take that extra tin of beans "just because it's free," potentially leading to more waste in our shared kitchens? It is a tricky balance, but by being mindful of our own biases, we can ensure these great initiatives help our wallets without hurting the environment. By making conscious choices, you stop funding deadweight loss and cast a vote against those 10.7 million tonnes of waste (WRAP, 2023).

Reference List

 

1.     AAkerlof, G. (1970). The Market for Lemons: Quality Uncertainty and the Market Mechanism. The Quarterly Journal of Economics, 84(3), pp.488-500.

Ariely, D. (2008). Predictably Irrational: The Hidden Forces That Shape Our Decisions. New York: HarperCollins.

Kahneman, D. (2011). Thinking, Fast and Slow. London: Penguin Books.

Kahneman, D., Knetsch, J.L. and Thaler, R.H. (1990). Experimental Tests of the Endowment Effect and the Coase Theorem. Journal of Political Economy, 98(6), pp.1325-1348.

Kahneman, D. and Tversky, A. (1979). Prospect Theory: An Analysis of Decision under Risk. Econometrica, 47(2), pp.263-291.

Shampanier, K., Mazar, N. and Ariely, D. (2007). Zero as a Special Price: The True Value of Free Products. Marketing Science, 26(6), pp.742-757.

Varian, H.R. (2014). Intermediate Microeconomics: A Modern Approach. 9th ed. New York: W.W. Norton & Company.

WRAP (2023). Food surplus and waste in the UK – key facts. Available at: https://www.wrap.ngo/resources/report/uk-food-waste-food-surplus-key-facts (Accessed: 10 April 2026).

 

Going Live, Staying Hidden: How Streamers Exploit the Information Gap

 

Livestreaming platforms such as Twitch, YouTube Live and Kick have grown to where creators broadcast in real time to millions of viewers worldwide. However, beneath the entertainment lies a fundamental economic problem: asymmetric information, where there is an imbalance of information across participants in an economic transaction. In this blog, we explore three branches of this issue - principal-agent problem, moral hazard and adverse selection - within the livestreaming industry.

 

In 2024, a live stream by Johnny Somali sparked fierce criticism across South Korea. While visiting the country, he kissed a statue of a "comfort woman," widely perceived as an insult to the victims of Japan's wartime atrocities (BBC, 2026). While many have condemned this act as outrageous, an uncomfortable question has emerged: why do creators engage in such actions?

 

To answer this question, you must understand one economic concept: the principal-agent problem. Platforms like YouTube and Twitch act as the principal, while content creators serve as the agent. Ideally, both parties can benefit from working together: creators produce content, and platforms provide exposure and revenue.

 

However, their incentives often conflict. Creators are rewarded for generating short-term attention. Platforms, on the other hand, prioritise long-term goals such as user trust, brand reputation, and content that appeals to advertisers. This conflict of interest creates tension. While harmful content can damage a platform's image, it can also generate high engagement in the short term. Feelings of anger lead to increased view counts, higher engagement, and ultimately, greater revenue. Therefore, his immoral strategies could be seen as economically rational from a content creator's perspective.

 

Furthermore, creators are not the only ones bearing the full cost of such behaviour. The repercussions, including public backlash, cultural harm, and damage to reputation, often fall on the community and the platform. Because creators do not face commensurate consequences, they take greater risks. As long as revenue is tied to view counts and engagement, the incentive to push the boundaries will not disappear. Why don't platforms simply put a stop to such behaviour? Whilst it is possible to impose bans or suspensions, doing so strictly risks reducing content supply and user engagement.

 

Ultimately, this highlights a fundamental contradiction in the digital economy: while platforms rely on creators for user engagement, they cannot fully control their behaviour. As long as attention remains the primary currency and the incentive structure stays unchanged, controversial content will continue to proliferate. This stems from a broader issue of asymmetric information, moral hazard, a situation that arises when one party in an economic transaction cannot observe another party's behaviour, leading to one party taking on excessive risk (Goolsbee, 2024).

 

The mechanism for this starts with revenue, which is a product of views, donations, and subscribers. In this current media climate, the most effective way to stand out in streaming is to do things outside the norm: extreme stunts, large-scale activities, or controversial content driving viewership. However, some streamers take this to the extreme.

 

Take Twitch streamer Kai Cenat, one of the platform's biggest streamers, with 19.8M followers and a peak concurrent viewership of 1M. In 2023, he did a PS5 giveaway in New York, livestreaming the event (BBC, 2023). Due to a lack of planning and coordination with the city, thousands of people rampaged through Union Square, hurling bottles, stones, and tins of paint. This caused the NYPD to declare a level four mobilisation with one thousand officers dispatched, assaulting police and resulting in sixty arrests. This suggests that Kai Cenat’s marginal private benefit was high through global viewership of this event, but his marginal private cost was moderately low, such as soft legal consequences, despite inciting a riot. The main costs were imposed on the public through property damage and injuries, the police, emergency services, and the platform. In microeconomics, this is called negative externalities, from the production of the live-streamer. As streamers do not internalise these external costs, risky behaviour exceeds the socially optimal level where marginal social cost is greater than marginal private cost.

 

After discussing the streamers, let’s turn our attention to the products they sell during their livestreams.

 

Have you ever wondered whether the products promoted by liverstreamers are genuine? They appear convincing on screen, and the discounts seem too good to resist.

 

In fact, such doubts are justified. A report by Reuters states that live-stream shopping makes it more difficult to identify counterfeit or substandard goods, as real-time video and rapid transactions limit effective verification (Reuters, 2024). This can also be attributed to asymmetric information. In the livestreaming market, sellers and streamers often know more about the products themselves than consumers do.

Consequently, consumers rely more on signals such as the streamer’s reputation to judge product quality. However, this often does not reflect the true quality of the goods. Whilst some streamers might promote high-quality products to safeguard their reputation, most streamers are typically incentivised to promote best-selling products to maximise commissions, rather than to recommend genuinely high-quality products. As a result, low-quality products can exploit the streamer’s reputation to be presented as equally trustworthy.

 

From the consumer’s perspective, products begin to appear similar in quality. When consumers are unable to distinguish product qualities, they might assign a price based on their perceived average quality. This might result in an unfair price for high-quality sellers, leading these sellers to exit the market. Thus, the average quality of remaining products declines, consumers become willing to pay even lower prices, and more high-quality sellers are driven away. This is known as adverse selection, a situation where there are stronger incentives for “bad” types of a product to be involved in a transaction than “good” types of the product (Goolsbee, 2024).

 

Overall, the livestream platform can highlight how asymmetric information can distort incentives across a wide range of areas, from creators’ behaviour to product markets. Unless these information gaps and misalignments of incentives are addressed, the market will remain inefficient, with society bearing costs that benefit only individual streamers.

References

 

Ng, K. (2026). ‘Johnny Somali: South Korea jails US YouTuber for public nuisance’, BBC News, [online] 15 Apr, Available at: https://www.bbc.co.uk/news/articles/cj400lje9vxo (Accessed: 23 Apr 2026).

 

Kim, C. (2023). ‘Kai Cenat: Twitch streamer says he's "beyond disappointed" after New York riot’, BBC News, [online] 4 August, Available at: https://www.bbc.co.uk/news/world-us-canada-66466699 (Accessed: 3 April 2026).

 

Goolsbee, A., Levitt, S. and Syverson, C. (2024). Microeconomics. 4th edn. New York: Macmillan Learning. Kortext. Available at: https://read.kortext.com/reader/pdf/948705/ (Accessed: 25 Feb 2026).

 

McLymore, A. (2024). ‘Focus: ‘Livestream’ shopping thwarts some high-tech tools to stop fake merch’, Reuters, [online] 8 May, Available at: https://www.reuters.com/technology/livestream-shopping-thwarts-some-high-tech-tools-stop-fake-merch-2024-05-07/ (Accessed: 24 April 2026).

Sold Out in Seconds: Why the Concert Ticket Market is Failing Fans

 Let me guess, you and your friends have been dying to go to the next Drake concert, but tickets have instantly sold out and are now being resold for 5 times the price. And what's worse, you can’t even tell if these tickets are real! This isn’t just bad luck. Economists would suggest two concepts that can explain this issue: asymmetric information, where sellers know more about the validity of the ticket in comparison to buyers, and the negative externality placed on genuine fans when bots buy out tickets before they even get a chance. This pressure pushes fans into irrational decisions, overpaying on sketchy resale sites out of fear of losing out.  Are we doomed to buy dodgy, expensive tickets, or is there actually something that can be done? 

 

When resale becomes a market failure (and why we keep paying anyway)

A resale market can be defended in theory. They can be seen as efficient because tickets are reallocated to those buyers who are willing to pay the most. However, once bots and fraud enter the market, that logic becomes significantly weaker. The market now reflects a form of market failure where bots create negative externalities, and fraudulent listings worsen asymmetric information. As bots artificially inflate demand, prices rise, and genuine fans who can’t afford to pay these heightened prices get pushed out entirely

Figure 1: How bots distort the concert ticket market

Source: Authors’ own 

 

As shown in Figure 1, bots impose costs on ordinary buyers who never chose to participate in that race. Some industry reporting suggests that 73% of major ticket sales were targeted by bots in 2023 and that bots can buy in 0.2 seconds compared to the 45 seconds it roughly takes a human (Doubois, 2026). This shows how automated buying creates a negative externality by pushing fans into longer queues and having a much lower chance of getting face-value tickets. But the impact of bots goes beyond just the price. 

 

Furthermore, bots buying up tickets creates a sense of urgency, which results in fans turning towards unofficial sites. The UK government says the CMA’s analysis found that typical markups on the secondary market at 50% (UK Gov, 2025). We might assume fans would simply walk away at that point, but loss aversion and FOMO mean people will still pay over the odds rather than risk missing out entirely, acting against their own rational self-interest.

 

 

Can you even trust what you are buying?

 

With the recent rise of resale opportunities in online markets, there are now more creative ways than ever to deceive buyers (bots, fraud). This can be scary, but it's important to know what market you’re realistically navigating when buying a concert ticket these days. Fake concert tickets have become increasingly common in secondary markets, and in this scenario, sellers have more information about the authenticity of their tickets than buyers do. Some sellers can be genuine in selling tickets that are real, but others take advantage of a ‘sold-out’ event of a popular singer by selling fake digital tickets to earn money (Kiger, 2023). Subsequently, buyers have no way of identifying which seller is honest, leaving them with less information about whether the ticket is real or fake. This creates uncertainty and highlights the market failure of asymmetric information between buyers and sellers (EBSCO, 2025).

 

The frenzy of buying concert tickets has caused losses of almost £1.6 million in music-related ticket fraud in the UK, with nearly 3,700 scam complaints in 2024 (Office, 2025). This is mostly caused by resales on unauthorised sites where fake tickets are essentially worthless, yet since buyers blindly trust sellers and are loss-averse, fraudsters can still sell them for a price far greater than what it's truly worth, encouraging more scams to pervade the market. 

 

 

So, what's being done to tackle this, and does any of it actually work?

 

In November 2025, the UK capped resale ticket prices, meaning you can't list a ticket on resale platforms for more than you originally paid. It's estimated to make resale tickets £37 cheaper on average, saving fans collectively £112 million per year, but the real challenge is actually enforcing it (McIntosh, 2025).

The catch? Resellers won't just disappear; they'll just move to platforms like Facebook Marketplace, where buyers have even less protection. In Ireland, where these caps already exist, fraud is nearly four times higher because caps have driven demand underground into informal markets full of scammers (Gottfried, 2025).

 

A more direct fix is digital verification. If every ticket carried a verifiable digital certificate proving its authenticity, buyers wouldn’t be crossing their fingers and holding their breath at the gate, hoping it scans (Ticket Fairy, 2026). Even if bots manage to rapidly buy tickets, a verified certificate tied to a legitimate purchase makes it far harder to bulk buy and resell fraudulently, cutting off the bot resale pipeline. This closes the information gap between buyers and sellers that makes fraud so easy in the first place, as the certificate acts as a price signal to buyers that the ticket is genuinely worth what they are paying. Therefore, resale is not stopped entirely; it just makes passing off a fake significantly harder. 

 

People always suggest a boycott, but let's be real: if your favourite artist announces a tour, are you actually going to stop searching for tickets? Most of us won't, and that's exactly why the problem persists.

No single fix will solve everything, but combining smarter legislation with enhanced technology is the best way to ensure a fairer deal for music fans.

 

 

It would be wrong to say ticket resale markets are inherently broken. They do end up providing tickets to people who really want them. But bots and fake tickets have ruined it for everyone. Asymmetric information has broken trust, irrational decision-making driven by FOMO has pushed fans into overpaying, and bots produce a negative externality with the rest of us, real Drake fans stuck at the back of the queue. Policy alone can’t fix this. As Ireland shows, price caps can actually make things worse by pushing resale into even less regulated spaces. The only real solution comes from closing the information gap through digital verification and smarter platform regulation. This way, we can all actually get to that next Drake concert, with no stress and our wallets intact. 

References:

 

Doubois, N. (2026). Concert Ticketing Industry Statistics: Market Data Report 2026. [online] Worldmetrics.org. Available at: https://worldmetrics.org/concert-ticketing-industry-statistics/ [Accessed 17 Apr. 2026].

‌EBSCO. (2025). Information asymmetry | Social Sciences and Humanities | Research Starters | EBSCO Research. [online] Available at: https://www.ebsco.com/research-starters/social-sciences-and-humanities/information-asymmetry [Accessed 10 Apr. 2026].

Gottfried, G. (2025). UK’s Ban On For-Profit Ticket Resale Official, Reactions - Pollstar News. [online] Pollstar News. Available at: https://news.pollstar.com/2025/11/19/uk-makes-plans-to-ban-for-profit-ticket-resale-official-reactions/ [Accessed 13 Apr. 2026].

Kiger, P.J. (2023). Buying Sports or Concert Tickets? Here’s How to Avoid Scams. [online] AARP. Available at: https://www.aarp.org/money/scams-fraud/avoid-fake-sports-concert-tickets/ [Accessed 18 Apr. 2026].

Madders, J. (2025). Putting fans first A consultation on the resale of live events tickets. [online] Available at: https://assets.publishing.service.gov.uk/media/677ff33422a085c5ff5c0546/putting-fans-first-consultation-on-the-resale-of-live-events-tickets.pdf? [Accessed 18 Apr. 2026].

McIntosh, S. (2025). What Are the Planned New Ticketing Laws, and How Much Could They Save fans? BBC News. [online] 18 Nov. Available at: https://www.bbc.co.uk/news/articles/cj6nlr4wj09o [Accessed 13 Apr. 2026].

Office, H. (2025). £1.6m lost to gig ticket scams as public urged to take caution. [online] GOV.UK. Available at: https://www.gov.uk/government/news/16m-lost-to-gig-ticket-scams-as-public-urged-to-take-caution [Accessed 10 Apr. 2026].

Ticket Fairy (2026). Ticket Fairy Promoter Blog. [online] Ticket Fairy Promoter Blog. Available at: https://www.ticketfairy.com/blog/fan-to-fan-ticket-resale-in-2026-tech-strategies-for-a-fair-secure-secondary-market [Accessed 14 Apr. 2026].

The Billion-Dollar Lag: Why Ozempic's Successor Is Stuck in the Lab. A Microeconomic Look at Externalities, Incentives and Market Failure

 

Chances are, you've scrolled past at least one dramatic celebrity weight-loss story on social media recently. From stars like Oprah to Megan Trainer, everyone's favorite celebrity has seemingly attained their dream bodies overnight. These transformations didn't happen in the gym, but through the wonder drug: Ozempic. Ozempic, the weight-loss drug that has taken the world by storm, is the most well known product in a broader class of drugs known as GLP-1s.

Source: Daily Mail, 2024

 

GLP-1s work by making you fuller longer and curbing your appetite– simple in theory, transformative in practice. For patients, this means weight loss and significantly lower risk of heart attacks and strokes. But the benefits don't stop at the individual. A healthier population means less pressure on the NHS, which currently spends a staggering £98 billion a year dealing with obesity-related illness and lost productivity (Campbell, 2023). Employers benefit too as fewer sick days means more productive workers.

 

So far, so miraculous. But here's the uncomfortable truth: the very company behind Ozempic has no incentive to make it better, cheaper or more accessible. Novo Nordisk, the Danish pharmaceutical giant behind Ozempic, is sitting on one of the most profitable drugs in history. With demand already outstripping supply, why pour billions into researching the next generation of GLP-1s?

 

From a business perspective, the answer is simple: don't bother. The problem isn't greed, it's logic. The benefits of next-generation GLP-1 research, what economists call positive externalities, would flow to patients, the NHS and taxpayers, but Novo Nordisk would foot the entire bill. That's not a gamble any boardroom would take. And so the research stalls, and society pays the price. This is the “billion-dollar lag”.

When Profit and Progress Don't Mix

Source: Indiana University, 2023

 

Imagine you are on the board of directors of Novo Nordisk. Your current drug is a global phenomenon, demand is outstripping supply and the profits are rolling in. Now someone proposes funding the next generation of GLP-1 research, do you say yes?

 

Probably not. The odds of a new drug making it to the market are just ~15% (Schuhmacher, 2025). Furthermore, your patents could expire before the drug is even approved, meaning competitors can copy and sell it freely, leaving you with but a small portion of the returns on your own research. On top of that, even if your drug succeeds, much of the benefit flows to the patient, NHS and taxpayers rather than Novo Nordisk’s own balance sheet. In a gamble like this, you'd pocket the difference too.

This is what economists call the principal-agent problem. Society needs firms to take on research but cannot offer them enough of the reward to make it worthwhile. The result is a level of innovation far below what society actually needs– a market failure, plain and simple.

 

Why the Obvious Fix Isn't So Obvious

So what should governments do? The fix seems obvious. If companies won't take the research risk voluntarily, governments should make it worth their while. The two main tools governments can use to accomplish this are patents, which grant companies a temporary monopoly on a new drug, and direct research subsidies which offset the cost of research upfront.

 

Both options sound reasonable on paper, but they are not free. Patents are paid for by society through higher drug prices during the protected period, while subsidies draw directly from taxpayer funding. This means getting the balance right is not just a technical challenge but a question of how much society is willing to pay for innovation it may never fully control.

 

In a perfect world, governments could calibrate this precisely. Patents would last just long enough to reward innovation without blocking out competition. Subsidies too would cover exactly the risk needed to make research worthwhile- no more, no less. Companies would invest at the pace society needs and everyone would be better off. If only it were that simple…

Source: Authors' own

 

The reality is that pharmaceutical companies know far more about their actual research costs than any government does, that information gap, also known as information asymmetry, is where things unravel. Armed with that knowledge advantage, firms can lobby for subsidies well beyond what is genuinely needed, or push to extend patents far longer than is socially justified. This is why recent court battles over patent expiry such as Novo Nordisk's current case in Brazil, China and Canada are not one-off occurrences (IP fray 2026, Health Tech World 2025). Rather, they are what happens when the referee writes the rulebook.

 

Who Will Push Innovation Forward?

So where does this leave us? The “billion-dollar lag” is not simply a story of slow science or missing technology. It is a story of misaligned incentives. When existing drugs already generate billions in profit, further research looks like an expensive gamble rather than an urgent priority. And because the benefits of that research spill over to patients, the NHS and taxpayers rather than back to the firm, the market will never fix this on its own.

 

But it doesn't have to stay this way. When governments design intervention around the incentive problem rather than simply throwing money at it, the results can be remarkable. Operation Warp Speed, the US government's COVID-19 vaccine programme, promised to buy the vaccines before they even existed, removing the commercial risk that normally paralyses pharmaceutical drug research. The result was multiple approved vaccines in under a year (Gollom, 2020).

 

Applied to GLP-1 research, the same model could promise a market for next-generation drugs before they even exist, giving firms like Novo Nordisk a reason to take the gamble. The blueprint exists. The only question is whether governments will act before the next crisis forces their hand.

Reference List:

Campbell, D. (2023). Cost of people being overweight in UK now £98bn, study finds. The Guardian. [online] 4 Dec. Available at: https://www.theguardian.com/society/2023/dec/04/cost-of-people-being-overweight-in-uk-now-98bn-study-finds (Accessed: 23 April 2026).

Daily Mail (2024) 'Oprah Winfrey admits she DID use weight loss medication', Daily Mail, 13 January. Available at: https://www.dailymail.com/tvshowbiz/article-12860333/Oprah-Winfrey-admits-DID-use-weight-loss-medication.html (Accessed: 23 April 2026).

Gollom, M. (2020). Why Trump’s Operation Warp Speed is credited with helping race for COVID-19 vaccine. [online] CBC. Available at: https://www.cbc.ca/news/health/operation-warp-speed-trump-pfizer-moderna-vaccine-1.5806820 (Accessed: 23 April 2026).

Health Tech World (2025) ‘A key Ozempic patent lapses in Canada: Deliberate or a mistake?’, Health Tech World, 22 September. Available at: https://www.htworld.co.uk/news/a-key-ozepmic-patent-lapses-in-canada-deliberate-or-a-mistake-rg25/ (Accessed: 23 April 2026).

Indiana University (2023) 'Behind the Ozempic headlines', My IU, Available at: https://www.myiu.org/stories/behind-the-ozempic-headlines.html (Accessed: 23 April 2026).

IP fray (2026) ‘China’s top court grants Novo Nordisk win over key Ozempic patent’, ip fray, 5 January. Available at: https://ipfray.com/chinas-top-court-grants-novo-nordisk-win-over-key-ozempic-patent/ (Accessed: 23 April 2026).

Schuhmacher, A., Hinder, M., Brief, E., Gassmann, O. and Hartl, D. (2025) ‘Benchmarking R&D success rates of leading pharmaceutical companies: an empirical analysis of FDA approvals (2006–2022)’, Drug Discovery Today, 30(2), 104291. Available at: https://doi.org/10.1016/j.drudis.2025.104291 (Accessed: 23 April 2026).

Best Believe, British Beelines Bamboozles Boarders

 DingDong! Your train has been cancelled…

Have you ever found yourself at the station waiting for a train that never ended up coming? You could be waiting for one right now. But, you’re not alone! In 2025, Great Britain had 7.4 million trains planned and a 4.1% annual train cancellations score. This implies approximately 300,000 train cancellations left passengers stranded (Office of Rail and Road, 2026). We hear stories of the futuristic rail systems in Japan and Switzerland, where trains are affordable, on time, and rarely ever cancelled. Private operators, such as JR East, which have not raised fares in over 31 years, and the publicly owned Swiss railway system, where 60% of the funding comes from government subsidies and public investment (Harding, 2019). Yet, in the 6th largest economy, we pay absurd fares whilst having a 4.1% chance of never actually reaching our destination (Office of Rail and Road, 2026). Is this simply poor infrastructure and management? Or are private actors deliberately taking advantage of the principal-agent problem?

Figure 1: Mass Cancelling of trains (Getty Images, n.d.)

 

What is the Principal-Agent problem?

Train cancellations are not always a reflection of circumstances such as bad weather or strikes, they could be a principal-agent problem. The principal-agent problem occurs when an entity (the “agent”) is hired by and makes decisions on behalf of another entity (the “principal”). Since the principal can only observe the outcome, the agent will pursue their own interests rather than the principal’s. Here, the principal-agent problem leads to a moral hazard (Grossman and Hart, 1983). What’s a moral hazard, you say? I’ll leave that to future me to explain!

Figure 2: The principal-agent problem (Source: ChatGPT, 2026)

 

 

In the UK rail system, the government, as the principal, observes outcomes such as cancellations and delays. But, it cannot know how much effort train operators, as the agents, put into staffing, maintenance, disruption management, etc. In practice, train operators aren’t willing to reduce cancellations and delays by increasing spending on train operations. Put simply, if a company feels a decision is not worth the cost, it may decide to forego it. To try and solve this issue, the UK government has stopped renewing expired railway contracts and is moving towards nationalising the train system through establishing the Great British Railways (GBR) (Department for Transport and DfT Operator Limited, 2026).

 

 

Wait…but what do you mean by “Moral Hazard?”

Do you remember when I mentioned moral hazard? I’ll explain it now! Imagine you’ve hired a cleaner to tidy your home, paying them by the hour. When you’re home, they always appear to be hard at work, leaving every corner spotless. But as soon as you leave, they start slacking off, only mopping the floor just before you return.

Economists refer to this phenomenon as “moral hazard”. Once an agreement is signed, the agent can simply neglect responsibility since they don’t bear the full consequences. The agent may cut corners in their work, harming the principal.

 

 

The ones who made too many promises…

 

The UK rail franchising system has been in place since the 1990s, outsourcing passenger rail operations to private firms to introduce competition and improve efficiency. It sounds wonderful, doesn’t it?

 

 

Wrong! This system has created distorted, conflicting incentives. Operators know their own costs far better than the government, so to secure a franchise, they make extremely optimistic revenue forecasts, knowing that the government couldn’t verify this. A great example is Virgin East Coast, which promised to pay £3.3 billion to operate the East Coast line until 2023 (GOV UK, 2014), claiming that, in addition to more seats, passengers would enjoy cleaner, more reliable trains and faster journeys. However, within just a few years, the East Coast franchise failed, forcing the government to take over, using taxpayers’ money to foot the bill for a private company’s rash decision-making (Parliament UK, 2018). The franchising system created moral hazard twice. Operators inflated bids knowing the government would absorb the losses if they failed, then underinvested once contracts were secured knowing penalties were too small to hurt. The rail company knew that the government could not let the rail network grind to a halt if things went wrong. They enjoy the benefits of neglecting responsibility while others bear the cost. Who suffered when the franchise failed? That’s right: passengers like you left waiting for the train. It doesn’t get more morally hazardous than that! (Preston and Bickel, 2020)

Figure 3: Decision Tree Game

 

GBR: A new hope or the same old problem?

Next time you're stranded on a platform, remember that the system wasn't broken by accident. Private operators promised everything to win franchises, let the service quality decline through underinvestment, and then made taxpayers foot the bill when things went wrong. However, as the decision tree game above tells us, this isn't malice; it's rational economics. Play the game to find out how an agent can privatise gains and pass the losses onto you, the taxpayer. The GBR proposal to nationalise track and train could improve the situation, but the principal-agent problem isn’t resolved by just nationalising. Managers in a public rail body may still know more than ministers or passengers about costs, staffing, and maintenance, meaning weak monitoring can still lead to underperformance. GBR becomes the agent, meaning Parliament and the public become the principal. They must now hold a public body to account rather than a private one. Without binding and transparent performance targets, the incentive to cut corners doesn't disappear. Basically: new agent, same problem!

“Oh no! Should I give up?” - No! Here’s what YOU can do:

 

However, all hope isn’t lost. Switzerland’s SBB demonstrates that this problem is solvable. The Swiss Federal Railways' 1999 reform introduced what Desmaris (2014) calls a "net cost" model. Targets and budgets were fixed in advance through binding contracts with strict reporting requirements, meaning any overspend came out of SBB's own costs. The incentive to cut corners disappears because the state won't bail you out for promises you didn't keep, the agent bears the cost of their neglect. This is the model GBR needs. Write to your MP while the Railways Bill is still in Parliament. Contact the Office of Rail and Road. Ask what GBR's performance targets will be, and how they will be enforced. Demand accountability. Demand better standards. Demand a better GBR.

 

I hope our article was useful and informative! Why not take this short-quiz to see how well you understood it?

References

Department for Transport and DfT Operator Limited (2026) Great British Railways and the public ownership programme. Available at: https://www.gov.uk/guidance/great-british-railways (Accessed: 18 March 2026).

Desmaris, C. (2014) 'The reform of passenger rail in Switzerland: More performance without competition', Research in Transportation Economics, 48, pp. 290–297.

Getty Images (n.d.) Train departure board showing cancelled services in UK station. Available at: https://www.gettyimages.com (Accessed: 20 April 2026).

GOV.UK (2014) New East Coast mainline franchise confirmed. Available at: https://www.gov.uk/government/news/new-east-coast-mainline-franchise-confirmed (Accessed: 18 March 2026).

Grossman, S.J. and Hart, O.D. (1983). An Analysis of the Principal-Agent Problem. Econometrica, 51(1), p.7. doi:https://doi.org/10.2307/1912246.

Harding, R. (2019) 'Rail privatisation: the UK looks for secrets of Japan's success', Financial Times. Available at: https://www.ft.com/content/9f7f044e-1f16-11e9-b2f7-97e4dbd3580d (Accessed: 18 March 2026).

Office of Rail and Road (2026) Passenger rail performance. Available at: https://dataportal.orr.gov.uk/statistics/performance/passenger-rail-performance/ (Accessed: 18 March 2026).

OpenAI. (2026). ChatGPT Images 2.0 [AI image generator]. Available at: https://openai.com/index/introducing-chatgpt-images-2-0/ (Accessed: 23 April 2026).

Parliament.UK (2018) Rail franchising, House of Commons Committee of Public Accounts, Seventeenth Report of Session 2017–19. Available at: https://publications.parliament.uk/pa/cm201719/cmselect/cmpubacc/689/68907.htm (Accessed: 18 March 2026).

Preston, J. and Bickel, C. (2020) 'And the beat goes on. The continued trials and tribulations of passenger rail franchising in Great Britain', Research in Transportation Economics, 83, p.100846.