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Showing posts with the label Tragedy of Anti-Commons

Decision Making as Output and Bounded Rationality

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  The classical economics theories proceed on the assumption of rational agents. Rationality implies the economic agents undertake actions or exercise choices based on the cost-benefit analysis they undertake. The assumption further posits that there exists no information asymmetry and thus the agent is aware of all the costs and benefits associated with the choice he or she has exercised. The behavioral school contested the decision stating the decisions in practice are often irrational. Implied there is a continuous departure from rationality. Rationality in the views of the behavioral school is more an exception to the norm rather a rule. The past posts have discussed the limitations of this view by the behavioral school. Economics has often posited rationality in the context in which the choices are exercised rather than theoretical abstract view of rational action. Rational action in theory seems to be grounded in zero restraint situation yet in practice, there are numerous restra
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O-Ring and the Anti-Commons

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The post “ Macrowikinomics of Pandemics ” discusses around the O-Ring effect and its prospective impact on the production and business cycles. Implied is absence of a small element missing in the larger puzzle causing a halt in production. The production is hostage to a few components unimportant in standalone context yet very critical in production of goods and services.  The causes of these missing components can be varied. In the current state of things, the supply lines being located in China are disrupted due to the prevailing pandemic thus having cascading effect on the production lines across the world. Economic theorists term the same as supply shock. Redundancies are normally not factored in given these shocks are likely to be rare and short lived. Yet in optimizing for the costs, the ruin events can potentially hinder the manufacture of output thus a downward spiral in the global marketplace.   A mechanism to overcome these supply shocks would be to build in the necess
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