Social Innovations

Social Innovations.

Today in economics we talked about social innovations. 

An example of a social innovation is when companies hire supervisors to stop shirking. (Missionaries going out 2 by 2) This is a social innovation. 

A dilemma occurs when we compare Whales to Cattle.

The Whales are going extinct! Why? Because they are comunal property. Nobody owns them. Since nobody owns them every whaler on the planet plunders and loads his boat with all the whales he can fit with each venture. Why? Because he has no incentive to save the whales. He knows that if he doesn't kill the whale the next whaler will do the same. 

Why is this only happening to Whales and not Cattle ? The Cattle are owned by farmers. It is in the Farmer's best interest to keep his population at a sustainable rate and practice sustainable practices. The farmer won't plunder and pillage because he knows that it will only be to his detriment.

The key point here is: Ownership & Enforcement of Ownership must prevail, and when it does, The cattle rancher will align himself along his PPF (maximum output).

Today's simile: A social innovation is like a Policeman.

Double Coincident Want Problem

Another cool thing that we talked about was the fact that In a barter economy, nobody will specialize, because if I am to trade an M.D. his medical services for my web design, It is just so hard to figure out what amount of his medical services I need to give what amount of Web design for that ? The solution is money.  wether it is Wheat or a stick or a piece of paper, money is the solution. 

Money $$$$ what is $$$$$$$ ? it is a common good accepted by everyone. 
If I accept money I only accept it because I know that somebody else will accept it from me! It has nothing to do with me liking it.

Opportunistic Behavior

Oil Refinery and Oil Pipeline analogy. The pipeline is owned by company A and the Refinery by company B. If company A were to commit to build the pipeline company B would then exploit them to the max. 

Q:How do we overcome this issue?
A:vertical integration. aka joint ownership. When two different companies combine forces and invest together so that A can't screw B and B can't screw A
A2:Contract enforcement. (Gov't)
A3:Reputation of Company A or B at risk.




That's all folkz
-ahs