Tag: public goods

O-rings in Community

The O-ring model in economics offers an explanation of a production weakness.

The O-ring theory of economic development is a model of economic development put forward by Michael Kremer in 1993,[1] which proposes that tasks of production must be executed proficiently together in order for any of them to be of high value. The key feature of this model is positive assortative matching, whereby people with similar skill levels work together.[1]

The model argues that the O-ring development theory explains why rich countries produce more complicated products, have larger firms and much higher worker productivity than poor countries.[2]

The name is a reference to the 1986 Challenger shuttle disaster, a catastrophe caused by the failure of O-rings.

WIKI

However, this model understates the possible results, as its production is thought to be positive. In communal markets, the weakest link can fail in their task and draw against the resources other teammates offer.

At Home Economics, we like to distinguish between two types of products: some are more conducive to private transactions, and others are more conducive to communal or public transactions. Those in the first category benefited greatly from the division of labor, for instance. Every worker in the chain focuses on one job, and the line produces a fabulous model T. The second category includes activities such as the ‘eyes on the street’ method of public safety, which was developed by urbanist Jane Jacobs. If a community is mindful of on-goings outside their front doors and reports as necessary, then residents benefit from reduced crime.

Now consider two forms of education delivery. Say one involves students completing modules of schoolwork from a home computer. The overall score of the class will harmed by the weakest link, but each individual performs independently. Now consider a classroom setting. Say one child often misses the bus. They regularly arrive late to class. This disrupts the teacher’s material delivery and causes friction between the students. In this communal situation, it is not only the tardy child who suffers but the whole class. This scenario is one most often given in explanation of why some high-poverty elementary schools suffer from below-average performance.

With items suited to private goods production, the o-ring model implies fewer products that meet perfection. If a company builds laptops and one worker fails to meet standards, fewer laptops are sold. But in a group scenario, where the leaders, perhaps of a certain age, are unwilling to adopt an electronic methodology, say a new accounting feature, they create more work for employees effectively pulling negative productivity.

The negative impact potential in the o-ring model for communal products is underestimated.

Airplanes and pirate ships

As it becomes more and more accepted that government is not the sole purveyor of public goods, but just another actor in the economy with private interests, how do we then determine: What is a public good?

Here at Home Economic, we find that people associate with groups of individuals who share a similar interest. We’ve laid out a landscape of action based on whether a participant works towards their own interests or towards the interests of a group project. When work is done for the in-group, then it is a public good for all its members. When an individual takes action in an exchange with an outgroup, then it is private only to the individual. For instance, an inventor may, on one level contribute toward the project air travel, while still retaining a portion of the new technology in the form of a grant or a patent.

The private side is more visible as it is often compensated in fungible currency. Thus the flow of money can be traced and counted. But how do we see the public side?

In How Innovation Works, Matt Ridley tells the tale of the first attempts at air travel. People in several countries were working on this idea and it is safe to say that the information which transpired from these activities fall in the basket of a public good. The American government supported an individual, Samuel Langely, with grants of $50,000 (quite a sum in 1903). Although he internalized these funds privately, Langley was unable to come up with the goods for a successful technology. It was the Wrights brothers, with their zeal and voluntary efforts, who launched the Kitty Hawk on that successful day.

They tried to privatize their invention through the patenting system so they would reap a pecuniary reward, but to no avail. The information necessary was already out in the public sphere with no way to reign it back in.

In The Invisible Hook, Peter Leeson tells us about Pirates. He tells how pirates commandeer a vessel and then set out on the seas to pillage and steal. He calls the boat a “sea going stock company” as the boat crew operated it very must like a firm. I would say, however, that the boat was a public good to the pirates who shared the common interest of pillage and plunder. Here’s why. None of the pirates could sell their share of the boat. The ownership of the pirate endeavor was non-fungible.

A public good maybe identified if the the only way to access it is through membership to a group. You can’t sell a favor you are owed from one friend to another. You relinquish all rights and benefits to the good if you leave the group. When you exit.