Pur Autre Vie

I'm not wrong, I'm just an asshole

Sunday, December 04, 2005

The Good Things in Life are Inefficient

It was pretty uncomfortable for me when I realized that some of the greatest things in the world were built by slaves. Monticello, for instance, is one of the most beautiful buildings I have ever seen, but it was built by slaves. I don't know if the Taj Mahal was built by slaves, but I'm sure it was built on the orders of a monarch with no real accountability to anyone.

Expensive restaurants, meanwhile, thrive by exploiting principal-agent problems. Effectively, people eat at expensive restaurants when someone else is paying. This might be a client, a pharmaceutical rep, a lobbyist, whatever. The person who picks the restaurant and orders the meal is distinct from the person picking up the bill. If people were spending their own money they would often choose somewhere cheaper.

This is important because it means that society might not benefit from the existence of these restaurants or these beautiful old buildings. It's nice to think that the world is better off because the Taj Mahal exists, but there's no good reason to believe so (if you take into account the burden of building it in the first place). This is in stark contrast to, say, your local Wal-Mart, which demonstrably serves human needs in a cheap, efficient way. The incentives are basically right in the case of the Wal-Mart (occasionally there may be negative externalities on traffic or the environment). The incentives are almost guaranteed to mess things up when you have decisions about the allocation of resources made by people who don't own those resources.

Maybe it's good, though, that we can't look at beautiful things without wincing a little. Nothing in life should be so simple.

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