Economics on the beach II: the tragedy of the commons

There are things you want to do only with lots of other people. Go see a football game, for instance, or a pop concert. You would feel rather silly being the only one clapping and cheering. You might also prefer not to be the only couple in a restaurant. Aside from the growing feeling that you are probably in the wrong place, you miss the background chatter, the gentle clashing of dishes, the constant moving around of busy waiters. You would miss atmosphere.

But the beach, for me at least, could do with fewer people.

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Me, Myself and Economics: Unknowns, Trials and Errors

Maybe some remember the moment during their study, when they gradually left their textbooks behind and came in touch with journals and papers instead. While it probably felt like a step further towards the scientific process or even into the scientific sphere, one of the first obvious differences probably was the countless citations authors had stuffed in their introductions in order to impressively show how well their work is embedded in the state of the art as well as in the history of the discipline. I admired those authors for their comprehensive knowledge. Facing the extent of the literature I seemingly could have known already that the obvious question was and always will be: should I even know it?

In contrast to personal matters, knowing always seems to be preferable to ignoring when it comes to science. However, it is not that easy. For example, if I know the conclusions derived in a model or based on a study, while at the same time I do not know the underlying assumptions or the characteristics of the test persons, there is a high chance of misinterpretation and even misapplication of the conclusion I know. Especially in our discipline a lot of particles of information are taught which in the packed form crucially lack general validity. This is one reason why I took a little extra time in order to stick with textbook-knowledge. As I am critical of the fundamentals I probably have to step in at a fundamental level.

At the same time, new knowledge is generated day by day. While complete knowledge is utopic anyway, even specialization does not guarantee sufficient knowledge with regard to the issues you are investigating. Facing over two hundred years of economics, meanwhile hundreds of journals with economic background, and our restriction in time, it leaves the quest of acquiring the ‘right’ and ‘necessary’ knowledge with quite a load of uncertainty. For me science therefore always will partly – probably even to large parts – be about trial and error. That is the second reason for why I probably invested less time in catching up with reading than some would expect from a junior fellow and instead worked on a deeper understanding of what I already – seemingly – know.

The third reason for my priorities as I set them in the recent past builds on the previous one. It is clearly important to search the literature for new or comparable ideas, whether it is in favour of inspiration or just to avoid unnecessary repetition. However, already in the course of my study I did not content myself with just knowing an approach and its implications as they were taught in class. I liked to trace its derivation and apply it on my own. I claim that I was often rewarded with a more detailed understanding than many of my colleagues were able to show.

Of course, by sticking to this approach I clearly risk a further increase of my steadily growing reading list. This in turn increases the risk for repetitions of trials unknown to me. However, due to the admired authors and their frequently released literature surveys the shortfall, at least with regard to scientific content, may be not that comprehensive as the number of unread articles and books may suggest. Given that, involuntary repetition may not be rewarded with appreciation, but may again prove worthwhile with regard to a general and deeper understanding of the issues. Weighing up the remaining risk with the aspired chance of strengthening my comparative advantage I stayed on track: try and err, instead of only read, believe and copy in favour of an easy success.

At this point I want to refer to some economic model I am currently dealing with. It captures a sector of firms applying research and development in favour of new machines. The firms in this sector try to invent on the one hand, and imitate on the other hand. Efforts in favour of imitation means that they search for better machines in their competitors’ portfolio. Efforts in favour of invention means that they try to develop a new machine on their own.

Progress and its dispersion clearly needs both, research and development. It does not end with those diligent role models, who commendably keep track with the literature and reliably complete the paths scribed by it. There is also a need for those taking the entrepreneurial risk of abandoning the popular track now and then, testing new approaches or combining old ones in a new way – as Schumpeter would maybe state it.

Economics on the beach I: allocating stream water

It could easily have ended in a fist fight. Or more likely a plastic shovel fight. This is how it began. My kids, my wife, and I went down to a Cornish beach. A beach with an interesting feature. There is a small stream that runs high up the beach parallel to the sea for more or less the whole length of the beach. Kids find this stream almost more fun to play in than the often pretty rough sea, which is mostly inhabited by bodyboarders smashing into each other. As the stream runs essentially over and through sand with lots of stones around as well, it is very malleable. Kids (and, invariably, their fathers – mothers do not seem so keen) love to build little dams, dig up new channels, and create little pools to play in. On the given day, easily 20 to 30 kids (and some of their fathers) were happily engaged this way somewhere along the length of the stream, when suddenly the water was reduced to a tiny trickle and had stopped flowing altogether further down the stream.

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