Posted: May 14, 2018 1:05 am
Thommo wrote:Xerographica wrote:Thommo wrote:Xerographica wrote:Timmy is a ten year old who loves Harry Potter. Frank is a fifty year old who loves Adam Smith. In a democracy, Timmy and Frank will have equal influence on the rankings of Potter and Smith. In a buying market though, Timmy will have more influence than Frank, given that all of Smith's works are freely available online. But what about in a ranking market? Chances are good that Frank will outspend Timmy.
I can't find any reason to believe that, in regard to books. Why do you say so?
The Wealth of Nations (WON) is my favorite book. However, I have never bought it. Why would I buy it when it's freely available online? In this specific example, the market fails at ranking. More specifically, the buying market fails at ranking.
Have you ever heard of Amazon Kindle Unlimited (AKU)? It's like Netflix for books. Subscribers pay $10/month and they have unlimited access to a wide variety of books. Let's pretend that, all else being equal, subscribers were given the opportunity to use their subscription dollars to help rank the books. If I was a subscriber, and the WON was one of the titles, then each month I'd earmark most of my subscription dollars to it. In one year I would have allocated around $100 dollars to it. In this specific example, the market succeeds at ranking. More specifically, the earmarking market succeeds at ranking.
It's not clear what you're saying. Success is not a defined term there, and what you're actually describing is a straight vote (you and every other user get 100 votes to cast as you see fit) anyway.
In economics, success is when the supply equals the demand. This is entirely dependent on the demand actually being known, which is why it's a failure that I haven't bought my favorite book, and why it would be a success if I earmarked $100 dollars to it.
Private goods and public goods are different. People can benefit from public goods whether or not they pay for them...
"But, and this is the point sensed by Wicksell but perhaps not fully appreciated by Lindahl, now it is in the selfish interest of each person to give false signals, to pretend to have less interest in a given collective consumption activity than he really has, etc." — Paul Samuelson, The Pure Theory of Public Expenditure
The WON is a public good while a steak is a private good. I value both goods, but not equally... I value the WON a lot more highly than a steak. Right now I have the incentive to pretend to value the WON less than I truly do because then I can take the money that I don't spend on it and use it to buy a steak.
Here's my true ranking...
1. WON
2. steak
But here's how I spend my money...
1. steak
2. WON
It's a failure because how I divide my money between these two goods doesn't accurately reflect how my love is divided between them.
With AKU earmarking though, it's not like I'd have the option to spend my subscription dollars on a steak. Therefore I'd have absolutely no incentive to pretend that I value the WON less than I truly do. Success!
Thommo wrote:Xerographica wrote:With the buying market, I spent $0 dollars on my favorite book. But with the earmarking market, I spent $100 dollars on it in one year. This is a really big difference.
You didn't though. With the earmarking market you spent $100 dollars for the right to vote in the earmarking market. You still spent no dollars on the book because (as you correctly point out) you can access it for free regardless. So in your example what we've learned is that your spending is not (perfectly) reflective of your preferences. This makes sense as there are numerous confounding factors (such as copyright law).
I think we should keep this point clearly in mind as it seems central to what you're saying.
One premise of AKU earmarking is that Amazon would take its cut of the $100 dollars and pass the rest onto Adam Smith's estate.
Thommo wrote:Xerographica wrote:The economy works exactly the same way. If consumers feed faulty data to producers, then the supply is going to be wrong. Producers aren't mind-readers. They can't divine my true valuation of the WON. They can't divine your true valuation of your favorite book. So the objective is to figure out which type of economic system will result in consumers feeding the most accurate data to producers. In other words, the goal is to figure out which ranking system most accurately reflects the distribution of love.
I'm not sure that objective is right at all. It matters not one whit to producers that you prefer the works of Adam Smith - Adam Smith is not going to write more books either way.
Even though Smith can't write any more books about the Invisible Hand, other writers can. The number of writers that do so depends entirely on the demand for books about the Invisible Hand. So it's a success when the amount of money that consumers spend on books about the Invisible Hand accurately reflects their true demand for them.