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Showing posts with the label externality

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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Real Life Economics: Big Tech and Network Effects

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  In a few recent posts the increasing power of Big Tech and the possible consequences of the same were discussed. There is an increasing tendency of over reach by the Big Tech and thus has potential impact on the socio-economic-politic equilibrium of the society or the country. Their over reach was manifested in the US elections of late and has been in some ways manifesting itself in the Indian context too.   It would not erroneous to assume Big Tech is growing too big for their shoes and the states need to curb them. The roots of this power perhaps can be traced to early 2000s when Bill Clinton administration compromised with Microsoft in the anti-trust suits thus ensuring Microsoft was not split. Given the more than generous help given by the Big Tech in their campaign, President Biden is unlikely to go hard on them. In fact, this might embolden them to scale in their experiments in different countries. However a question at this stage would be what gives them the power to dictate t
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Debating GM Food

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Genetic engineering is the process of manipulation of genes in an organism or transplanting genes of one organism to another to create robust effects. Applications are multipurpose from medicine to food to agriculture to host of other unexplored domains. There is significant increase in genetically modified (GM) crops that are resistant to pests. It is feasibly a expedient technique than spraying pesticides and possibly long last effects. There are promises of increasing yield per acre, some evidence of which has been perceived in cotton etc. The agriculture industry across the world is ominously subject to rainfall and irrigation. Given the accumulative scarcity of usable water, it is germane to explore less water intensive methods of growing crops. GM embedded crops are understood as an essential tool towards developing drought resistant /snow resistant/ flood resistant crops etc. If GM agriculture is given a free license, endless possibilities ostensibly will open up. Yet, any di
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Externalities of Openness and Sharing

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Noted authors Don Tapscott and Anthony Williams in their book Macrowikinomics describe current system as the driven through networks leading them to describe it economy resting on networked intelligence. To them, collaboration, openness, sharing, integrity and interdependence emerge key success determinants in the networked information economy.     The emergent network intelligence was itself a product of rapid diffusion of internet downstream at a pace that surprised even its most exuberant adherents. Rather than irrational exuberance, the diffusion of internet seems to be an outcome of rational exuberance. Long deprived of information access, analysis and distribution thanks to the constraint of brick and mortar economy, internet threw open the floodgates. The principles illustrated above without doubt have defined a new stream of thinking and practice. Dynamic environmental indicators have changed the way we perceive environmental impact of our socio-economic activity. Organ
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Economics and Eclipses!

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Eclipses evoke fear, mystery and awe alike. For ancients, it was certainly a mystery. They would have been ignorant of a natural phenomenon that does not experience a frequent occurrence. During total solar eclipse when sun disappears and darkness abounds in the midst of the day, they would have certainly been fear struck and panic ensued for those few moments before the sun began to take ‘rebirth’. Given zero knowledge of science, it would have been most likely to be attributed to super natural forces. Within perhaps centuries, mankind probably make sense of eclipses as phenomenon that occur though the natural linkages might not have been established. To some ancient civilizations, there were astronomers who could predict eclipses in advance. Evidences of eclipses are found in ancient Hindu scriptures and mythology like Mahabharata etc . Given the supernatural attribution to eclipses, it gave rise to several theories and practices. Astrological significance would have added
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Perverse Incentives!

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There is a proverbial story about snakes in Delhi. During British days, apparently there was a time when Delhi was infested with snakes. The authorities were challenged to find a solution to the snake menace. People respond to incentives and one might not take recourse to economics for the same and instead follow common sense. So the authorities announced a reward for all those who kill snakes. The condition was the dead snake has to be produced as proof for claiming reward. The story goes when the reward was stopped, Delhi was infested with far more snakes than it began with. In other words the problem had multiplied. Without doubt, one needs to look why the policy failed. Does this story remind us that economics is not infallible and incentive mechanism does not work? Let us probe it in some depth. As Adam Smith first pointed out, at least in documented modern times, people function in their self interest. The self interest as an aggregate is what culminates into enlightened c
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