Second, one thing I like to use this blog for is keeping a record of interesting examples I find. Sometimes I'll be teaching, and I'll preparing to talk about some economics-y idea. I'll remember that I found some great example of that idea, but then I'll be unable to remember anything specific about the example or where I found it. So I try to write the examples down here when I find them.
So here's a too-long post about some books.
A while back I read The Wild Blue : The Men and Boys Who Flew the B-24s Over Germany 1944-45
by Stephen Ambrose. I hadn't realized that George McGovern ('72 Dem Presidential candidate) was a bomber pilot in WWII; this book is something of an oral history of his training and service. Here's the cool economics: During the war, the US military was trying to send bombers over Germany and Romania. To send a bomber on a mission, you need at least two inputs: (1) bombers and (2) bomber pilots. Both inputs require big investments: bombers are expensive to build, and pilots require lots and lots of training. (Apparently the B24 was quite a hard plane to fly.)
Now one cool feature of bombers and pilots is that it's an example of a fixed proportions production technology. You need to combine bombers and pilots in exactly a one-to-one ratio in order to generate bomber missions. One thing that happened during the war was that the military's ability to produce bombers got out ahead of its ability to train pilots. Which leads to some interesting tradeoffs (page 115). The army could let the extra bombers sit idle while the pilots are trained. Or it could shorten pilot training. If the army's goal is to maximize the probability of winning the war but at the same time minimize US casualties, it's not clear which option is better. Idle planes mean a smaller impact on Nazi oil refineries, and more gasoline for Nazi tanks. But less training means more pilot error, fewer bombs correctly dropped, and more crash landings. So this is quite a complex problem.
Ambrose, of course, doesn't focus on how exactly the army made difficult resource allocation decisions like this. But he should have. (The generals shortened pilot training in the end.)
(And yes I signed up for Amazon's "Affiliate" program. If you click on a link and buy books they'll send me a check. Same deal as with the Google Ads --- All proceeds to charity. I figure I'm going to link to the books anyway, and if Amazon is going to give away money I might as well take them up on it and direct proceeds to the Utah Food Bank.)
John McPhee is one of my favorite writers. If you haven't read his Annals of the Former World
run don't walk!
Recently I read McPhee's Table of Contents
Two in particular struck me.
One essay, Heirs of General Practice, is about the then-new medical specialty of Family Practice (this essay dates from the early 70s?). Specialization questions in economics go back to Adam Smith, and recently Luis Garicano (now at LSE) has written some interesting papers on how to optimally organize knowledge-based workers. Some of the main ideas are that it's costly for everyone to learn everything, so specialization is efficient. Thinking about doctors, the field of, say, orthopedics is so big that's it's not very easy for someone to master both that and, say, neurology. So we split up the work. But once you do that, you run into coordination problems. If one person knew everything, then we could just have that one person solve all problems. But if different people know different things, we have to have coordination mechanisms in place to get the right problem to the right expert. Family practitioners play an important role here. They know a little about a lot (as opposed to a lot about a little), and one of their main goals is to get the patient to the right specialist. Setting up incentives and organizational structures to get these referral decisions right is actually a hard (and economically interesting) problem, and it's present not just in medicine but also in law and consulting. Anyway, the essay focuses on the stories of several rural family practitioners in Maine.
Side note: Great recent article in the NYT Magazine about the issues in getting experts working together to solve hard problems in medicine.
Another aspect of McPhee's essay that was noteworthy: There's just a little discussion of competition among hospitals in Maine for patients. It's a great example of the Hotelling model of competition. In the Hotelling model, firms are geographically differentiated, and potential customers find it costly to travel. This means each firm is a local monopolist with respect to the customers that are close by. Firms compete for customers who are "in between" two firms. The story in the essay is along these lines: Hospitals are in the cities in Maine (do they have cities? towns, maybe...), and so if you live in a town you would almost never travel to go to a hospital in another town. So all the competition for patients happens in the in-between, rural areas --- right where the family practitioners in the essay are located. The Hotelling model is one the big workhorse models of the economics of strategy and marketing. While as originally written the model is about geographic differentiation, the main insights apply just as well to differentiation that comes from heterogeneity in consumer preferences, not just locations.
I told you this post was too long.
A second essay, Minihydro, is about how entrepreneurs responded to the 1970s oil price shock. The price of energy rose, and so suddenly it was profitable to figure out ways to produce energy more cheaply. One approach taken by many was to revisit small, abandoned dams in New York State, and get the electricity generators working again. Turns out that if coal is sufficiently cheap, mini hydro power can't compete. But once coal prices rise (and I think in this case there were also subsidies from the state for hydro), then getting these generators working again is profitable. The stories are about entrepreneurs scouring maps of New York looking for lakes that might have old dams. The entrepreneurs would then try to figure out who owned the dam (not an easy feat), and try to buy it.
Of course we've seen the same thing in the recent oil price increase --- long abandoned uranium mines in southern Utah have opened as entrepreneurs bet on increases in demand for nuclear.
Note the linkage here: Entrepreneurs observe high energy prices and immediately begin investing in ways to develop cheaper energy. This is one of the big arguments in favor of carbon taxes --- if we guarantee that oil and coal prices will be high, then we guarantee that entrepreneurs can make money from figuring out ways to produce carbon-free energy. And we really could use a burst of entrepreneurial zeal in this area.
Posts
No comments:
Post a Comment