Post 8: Team Production

For my example of team production, I will put forth a hypothetical situation. I feel this to be a valid interpretation of the prompt that, because of the flexibility of hypothetical situations, will provide more fertile ground to explore the concepts shown in the articles than any real life example I could provide.

            Deep in the Appalachian Mountains, far removed from the rest of civilization, there exists a commune called "Econ Land". The citizens of Econ Land chose to live there in order to escape the income inequality, classism, and crony capitalism of mainstream society. As such, the production and power structures of Econ Land have arisen with the goal of minimizing those structures' capacity for being gamed or manipulated unfairly, and to encourage and enforce a view that all citizens of Econ Land are equal. The productivity requirements of Econ Land are high due to its removal from the rest of civilization, with the commune needing to produce all of its own food, textiles, and shelter. There is an occupation for every citizen and every citizen must take an occupation. There is a large amount of collaboration needed to provide for the needs of the commune. The farmers raise livestock and crops. The wheat, corn, beef, and other food materials are given over to the cooks to make food that feeds everyone. The wool and cotton produced by the farmers go to the cloth weavers to make cloth goods, including aprons for the cooks and jackets to keep the farmers and construction workers warm as they work outdoors. The construction workers chop down the trees that the farmers raise for wood to be used in building structures that house everyone and provide indoor spaces for the cooks and cloth weavers to work in. Such structures are also used by the farmers to keep the livestock in during the Winter months. If any type of worker slacks in their production, the other workers will lack important inputs to their own production and everyone will lose as a result. There is no punishment needed for slacking in production, as everyone in the commune sees each other every day and will not want to hurt their friends and neighbors.

            As said before, the power structure of Econ Land was put together in the hope of minimizing the system's openness to manipulation. Econ Land's citizens wanted to take the "politics" out of Econ Land's power structure, and as such, unlike in mainstream society, Econ Land's sole leadership position, the President, is decided by pulling a name out of a hat containing the names of every citizen of the commune each week. The citizen whose name is pulled becomes President for that week. The President decides the allocation for that week's produced goods. Any leftover goods that the President did not have a specific allocation for that week, along with any goods that were returned because the citizen they were given to did not need them, are placed in an "honor box" that citizens can take from on a first-come, first-served basis. Also, citizens are of course free to give their allocated goods to each other.

            Overall, the workings of Econ Land show a system that works to encourage cooperation and egalitarianism and discourage selfishness and manipulation of the system. As noted in the first article linked, production resulting from true collaboration rather than simply working at the same time encourages egalitarianism. Econ Land's methods of production are comparable to that marble machine where both toddlers had to pull their ropes at the same time in order to get any marbles. Like with the toddlers, having to collaborate to produce makes the citizens of Econ Land more willing to share, which might be shown through a willingness to give to the honor box or else by sharing goods privately. The random allocation of power in the commune is similar to the "Random Dictator" game shown in the second article linked, where decisions are made by the person whose name is pulled from a hat. Because there is no condition that makes someone more likely to gain power, there is little capacity for systematic favoritism, and any group in the commune (such as farmers, construction workers, etc.) that has a member represented in the Presidency during one week knows that a member of another group will most likely be in power the next week. If the relationships between work groups in Econ Land are a game where the player has the option of playing fair (fair allocations as President) or cheating (unfair allocations) then the system is like a repeated game where everyone is encouraged to pick fair options due to the possibility of punishment from others in later games. Even the honor box is allocated on a first come, first served basis so that no single person or group has a better chance of getting leftover goods than any other. That no punishment is needed for slacking in production is reminiscent of what is shown in the third article linked, which posits that a moral view of one's actions can give as good or better results than a more economic view. Workers work hard to produce what they can because they know that anything other than that will result in the detriment of their fellow citizens. Working to one's capacity is viewed as a moral imperative rather than a choice in a financial transaction with the rest of their society, and the commune is well-off for it to the point where no financial transactions are needed in that respect.  

Post 7: Risk Preference

My future income risk management during my undergraduate years has had its ups and downs. As someone who will be receiving a B.A. in Economics, the subject matter of my major is applicable to a wide variety of jobs in the business world. However, when one looks at the major divisions of business practice -- e.g., finance, accounting, marketing and sales, and administration -- the classes in the Economics Department, while generally tangential in some way to all of them, do not prepare students particularly well for any one of them. In other words, a B.A. in Economics is broadly applicable but unspecialized. If preparing for jobs in the business world is looked at in terms of investment strategies, time spent on classes could be looked at as funds invested and preparedness for jobs could be looked at as the return. In this case, pursuing an Economics degree could be compared to a diversification investment strategy, in which time is invested in independent assets, or types of business jobs, in the hope of not losing a significant amount of money from any particular asset going through a rough time in the market. This should lead to consistent returns that are close to the market average. A quick look at statistics in the public domain will show that Economics degrees do, indeed, allow for average starting salaries at or above the average for those of other degrees pertaining to business. Because of this, I consider investing in an Economics degree to have been overall a good decision that led to lower income risk. This analogy is more applicable to diversification than to hedging because different types of business jobs can encounter a good market at the same time.

            Student loan debt is another important factor in preparing for life after undergrad. As was said recently in class, higher operating costs mean a higher amount of revenue is needed to achieve a given profit level than when operating costs are lower. In this case, less money to be paid to student loans will mean more money left for one's consumer spending (the "profit"). Effectively, lower student loan costs can mean a lower income risk ceteris parabus. I have been fortunate enough to have parents that kept my income risk very low on this front. Student loan debt is one area where future income risk is highly determined by luck, although less fortunate students can find some alternatives ways to decrease income risk, such as through scholarships or military service.

            Summer and extracurricular activities are where my income risk preference has been for higher risk in exchange for more immediate returns in terms of enjoyment. My only internship experience has been several months this past summer spent helping to review charitable services contracts and organize administrative records for Boat People, SOS, a not-for-profit dedicated to helping underprivileged Vietnamese-Americans. While this has given me some relevant business experience and connections, there has definitely been an opportunity cost to choosing not to start finding internships earlier. Pertaining to my extracurricular activities, I am a member of a service fraternity, where I have chosen to spend more time helping other members develop leadership and professional skills than on the actual service component, and I am also a member of the Illini Statistics Club. While both have given me relevant leadership experience and opportunities to practice professional skills such as communicating in a professional environment, I have not had many opportunities to make relevant business connections as a member of those organizations. Such connections could have helped further lower my future income risk by giving me a greater chance of making an average or above average salary through pathways to good job opportunities. This is where the opportunity cost of my choices on this front lies. However, I have had more fun and free time during my undergraduate years as a result of that tolerance for risk in the usage of my undergraduate time, since that tolerance led me to pursue activities I found more enjoyable over more "boring" but useful ones. This aspect of my risk management has shown me a possible connection between high risk preference and opportunity cost, which can tie the two parts of our course together.

            The most easily accessible person to me that has already been through the job market has been my father, who started his undergraduate experience as a chemistry major but switched to accounting partway through. During his freshman year of college, my father managed his income risk with the return of a good job as a chemist in mind, taking relevant chemistry courses and joining chemistry clubs. However, over the summer of his freshman year several chemical plants closed down in his area which led to him realizing that, due to the unreliable job market for chemistry, a chemistry career will inherently have a higher income risk than a career in say, accounting. Realizing that chemistry did not line up with his preference for low risk, he started managing his income risk with the goal of a career in accounting in mind, taking accounting classes and internships while working to make connections in the accounting field. In my father's view, a given investment of effort in an accounting career inherently carries a lower risk than the same investment of effort into chemistry. In other words, choosing to switch career paths was a major part of my father's income risk management. As he found an accounting job soon after graduating, this risk management paid off. My take away from this is that, when evaluating risk, one should look at the industry they are investing their resources in and see how returns in that industry are comparing with returns on similar investments in other industries. If it looks like risk will be significantly reduced by simply investing the same amount in another industry, one should consider making a change. I can see this happening in real life by looking at how well the biotechnology and healthcare industries have been faring in the wake of the recent recession. I believe the success in those industries is partly because people have been more willing to invest in those sectors because of the relatively inelastic demand for their products which leads to consistent returns.

Post 6: Reflection

One theme I have noticed across multiple posts from my blog is the theme of efficiency as an economic goal. Efficiency in terms of logistics in a team structure is mentioned in both of the posts where I talk about teams. When I use the concept of efficiency in those types of contexts, I am thinking of how much time and effort it takes across an entire team to accomplish a given goal. In my second blog post, I talked about how leadership in organizations was structured and restructured in pursuit of efficiency in managing the organization at its current stage of growth or decline. In my fourth blog post, I talked about efficiency in terms of how my organization's leadership structure affected it. In my fifth post, I touched on the concept of market efficiency and how Illinibucks and a "bidding up" system for determining who goes to the very front of a line maximizes the efficiency of the market for spots in line. Efficiency is maximized through having those who want to move further up in line the most (and are therefore willing to pay the most) move up the furthest. The two different senses of the word "efficiency" that appear in my posts contrast on the surface, but a closer exploration will show that both uses of efficiency pertain to how well a system is being used to accomplish one or more people's most desired goals. The frequency with which this concept appears in my posts shows to me how important it is to economics as a whole.

There is one additional way to tie my posts to themes in our class that I did not notice before. Pertaining to the blog post on team structure, I realize now that my service fraternity's lack of need for a formal system of accountability ties into our class's concept of repeated coordination games. Many people in my division of the fraternity are friends both in and outside of meetings, and it is common for groups of people to spend multiple semesters working in similar positions where they have to coordinate their activities. All directors and committee members in a semester will have to interact and cooperate with each other to some extent to plan activities, so someone that was a poor teammate during a previous semester would often have to work with the same people later.  Working together during a semester can be considered the equivalent of a coordination game with two options for each player: be a good teammate that is willing to compromise and does their fair share of the work (cooperate) or be a poor teammate that slacks off or refuses to compromise on important topics or even betrays their teammates' trust in some way (cheat.) There is a fairly high chance that the game will be repeated, either in the same form of cooperating as team mates or in a different but equivalent form of the future of a social relationship. Social relationships can be thought of as a cooperation game with two options: keep the relationship strong, which, like a "cooperate" option, will lead to a Pareto optimum of a good friendship if both players choose it, or let the relationship end, which, like a "cheat" option, will lead to a non-optimal equilibrium of the end of a friendship. The close-knit quality of the fraternity's brothers means that there is a high likelihood of cooperation games being repeated in one form or another, which means that the value of the theta variable in this case is relatively large. This acts as an informal system of accountability encouraging cooperation, as potentially uncooperative brothers know that choosing a cheat option will likely lead to their teammates choosing a cheat option themselves in the future, resulting in both players experiencing less than optimal outcomes.

My process for writing these posts has evolved in a way that I hope is noticeable. I try to focus less on quantity (the number of situations and ideas touched on) and more on quality (explaining those situations and ideas in economic terms in depth.) This is because, based on Prof. Arvan's comments, I realize that focusing on quality results in an overall higher quality post than focusing on quantity. I am changing my focus by listing out on paper the different topics that come into my mind after reading a prompt, and then just picking a few of those and exploring them to the best of my ability. I write my post based on what I think of at that point, and if an appropriate length has been reached, I conclude the post. If not, I pick another idea to explore.

In future prompts, I would like to see more opportunities to evaluate hypothetical situations like the "Illinibucks" prompt. Such prompts give us the power to create our own small economic world in our head with mechanics and dynamics we can play with for our edification. I find that the freedom that comes with evaluating a hypothetical situation allows for deeper exploration of economic ideas than exploring the economics of a real-life situation. I feel that this may be because a hypothetical situation can be shaped into a perfect exploration ground for an idea we are exploring, which is unlike a real life situation where exploration will be bounded by what did and did not actually happen. While being able to relate economic ideas to practical and applicable situations is important, I feel like the deeper exploration that comes from hypothetical situations will make this a more interesting class. 

Blog 5: Illinibucks

An "Illinibucks" system would likely be highly complicated to set up and implement, with the extremely large size of our student body and the University system only exacerbating the problem. Since the prompt was fairly open-ended on the specifics of how an Illinibucks system would work, I will make some assumptions. As was said in the prompt, I will assume that Illinibucks can only be used to move ahead in the many queuing situations around campus, with the University administration setting the price for moving ahead. I will assume that each student is given an equal allocation of Illinibucks, although other systems of allocation could possibly exist, such as upperclassmen being allocated more Illinibucks than underclassmen or making the Dean's List meaning an extra allocation of Illinibucks for the next semester. I will also assume that the Illinibucks method of gaining priority overrules other types of priority, i.e. someone using Illinibucks during class registration would jump ahead of the honors students. In the hypothetical Illinibucks system that I imagine, if two students use their Illinibucks at around the same time, the first student to use them moves to the front of the line, while the second student has the option of paying just the base price to be placed just behind the first or "bidding up" and paying extra to be placed in front of the first student. The second option will cause a sort of "fast lane" line of Illinibucks-paying students to develop in front of the regular line. For resources on campus that are limited in supply, in many cases the Illinibucks will result in an effective transfer of some amount of that resource from non-Illinibucks-paying to Illinibucks-paying students, as inevitably the students using Illinibucks will receive some amount of that resource that would've gone to other students otherwise.

            As was said in the prompt, the Illinibucks will be used only for moving ahead in queuing situations. The situations that would make good candidates for this include the priorities given when registering for classes online, physical lines at the Union Bookstore, and entry into the various events on campus, such as football games and concerts. The situations that will be the most popular candidates for Illnibucks usage will likely be the ones where the desired goods are limited in supply and running out is a concern, such as registering for classes, so the Illinibucks help you to obtain goods that you might not have been able to otherwise. Situations where supplies are usually considered not likely to run out, such as the line for new I-cards in the back of the Union Bookstore, would likely be less popular candidates for Illinibucks usage because using them in those situations only saves you time, while using Illinibucks in situations where running out of resources is a concern both saves you time and results in an effective transfer of a limited resource to you. Using the Illinibucks in one situation versus another could be considered to have an opportunity cost. An exception to the aforementioned rule might be the checkout line at the Union Bookstore, since, while supplies are limited, the line does not determine who gets the supplies -- once you are in line, the supplies in your basket already are effectively yours. Going through the jumble of people in the basement to grab the books you need off the shelves determines who gets the books. If a queuing situation was created for getting books in the basement, jumping ahead in that line would likely be more popular than jumping ahead in the checkout line. The most popular use for Illinibucks, however, would likely be gaining priority during course registration. A student registers for all their classes at the same time, meaning a single purchase of priority will help a student get all the classes they want for the next semester, with likely a more favorable schedule (such as no 8 a.m. classes) than they would have had otherwise. This purchase can also lead to more favorable outcomes like graduating early due to required courses getting finished in a more timely manner. As most students are presumably attending the University primarily to take the required classes and graduate, course registration is where many students would benefit the most from Illinibucks. Because of my priorities, course registration would be my first priority when budgeting my use of Illinibucks, and getting entry to events with limited seating such as football games would be my next priority. I would be unlikely to use my Illinibucks in situations that do not result in a transfer of limited supplies from others, like the bookstore checkout line. Those situations would only save me time. Other possible good candidates for Illinibucks would include lines at dining halls and signing up for housing, as both of those situations involve lines for limited and desirable resources, i.e. food and desirable rooms in housing, respectively.

            Pricing the use of Illinibucks would have to be done carefully. Setting prices too low in terms of Illinibucks would allow too many people to use Illinibucks in too many situations, resulting in little benefit obtained from use of Illinibucks since many people would be gaining priority. Allowing students to bid over each other to get ahead of people that used less Illinibucks would make mitigate the inefficiency of this situation, as the people that want to move ahead in priority the most (and are therefore willing to spend the most) will be able to move ahead of the students that want priority less. Setting prices too high would also result in little benefit being obtained by students, as Illinibucks could only be used very sparingly and a student would hardly ever be able to obtain benefits.