Why is Pareto Optimality Sometimes Not Achieved?
The Economist has an interesting article this week as part of their “Technology Quarterly” discussing electric-sourced buses in England. “Good idea”, you may think, right? I mean, in an age where the ever-growing evidence for global warming seems more and more convincing, shouldn’t we be priding ourselves on finding alternative methods to power public transportation? Certainly I don’t think anyone would disagree with that.
But what if I told you this same concept was first introduced over 100 years ago?
http://www.economist.com/printedition/displaystory.cfm?story_id=9719105
A small company in London first invested in these buses in 1907, but due to a series of unfortunate financial crises, the idea never fully revved into gear. How would an economist explain an obviously superior form of transportation being pushed aside for a century of fossil-fuel burning technology instead? The math certainly doesn’t add up–any first year grad student taking micro right about this time would be able to tell you that with ease. Then what is it?
The event should recall the parallel example of the development of the QWERTY typewriter system, seemingly directly in the face of proven superior layouts (such as Dvorak’s system, and yes, it has been scientifically proved to be more efficient) .
QWERTY was discussed by Paul David in a paper where he showed that some economic results simply arise from “historical accidents”, things that cannot be explained by economic theory. After a historical accident, all it takes is some social conventions and institutions to be placed around the outcome (in the case of QWERTY, so many typists had already learned it, and it was already applied to so many typewriters), and you get stuck in what may be a Pareto inefficient outcome.
The article brings up the general theme of what history means to economics, as a social science. Many economists seem content to shrug off the role of history as something exogenous to whatever theoretical model they may have developed. They fail to see that a social science is one that encompasses all other aspects of society (not just the aspect governed by seemingly-eternal economic laws), and so any theory that proposes to neglect historical trends is not doing its best to be scientific. As E.C. Harwood believed, truth is a very difficult thing to pinpoint, and while at times mathematics can give a very compelling argument for finding “the right answer”, things are far from solved by simply taking first order conditions and solving for zero.
And perhaps as a result we may further our quest for knowledge, the true goal of the scientist as argued by Harwood.
