UtilityMinimization

I recently got in a bike crash and separated my shoulder, and my trips to the emergency room and various doctors got me thinking about how difficult to navigate the US health care system really is. Going to the ER, in a great amount of pain required me to wait around for hours before before being seen by a doctor. They were quick to make sure I have insurance, and that opened up levels of care not afforded to the myriad of uninsured patients. After visiting the ER, I called my orthopedist, but he no longer accepts my insurance, so I had to go to the website, find a new orthopedist, make an appointment, realize I didn’t like him, find a new doctor, and so on.

Of course, life does not have to be this difficult. When I go buy a car, I don’t have to work nearly as hard, so why should buying healthcare be any different? In his brilliant book, The Undercover Economist: Exposing Why the Rich Are Rich, the Poor Are Poor–and Why You Can Never Buy a Decent Used Car!, Tim Harford lays out the difficulties of health care policy as well as how to overcome many of the problems in the US system. This post recounts his solution with some comments of my own.

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A friend who is traveling to India recently received a flier from the Indian Consulate that stated that the Consulate would no longer be processing visa applications directly, but rather, all visa services have been outsourced to a company named Travisa Outsourcing, Inc of New York, NY. Despite the obvious irony that the Indians are choosing to outsource work to the US, the change serves to illustrate the long-term benefits of outsourcing to both the outsourcing country and the recipient of the work. In the end, outsourcing work will lift the economies of everybody involved–not to mention the economies of many countries not involved.

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Gas prices are high, and we still need/want to drive a lot of places. This combination has us looking at alternative methods of fueling our vehicles. One method that has started to catch on is hybrid gas/electric cars, such as the Toyota Prius. These vehicles use gravity to charge a battery that assists the gasoline engine and reduce fuel consumption. Unfortunately, some studies show that these vehicles do not use any less fuel, and the battery is mostly used to give the vehicle more power. Since that is what the market really craves, auto manufacturers are only too happy to oblige.

A second ‘alternative’ method is the use of ethanol fuels made from corn. Since this is not a new technology, people schooled in economics should be extremely wary of such a solution. The reason is simple: if we could have used ethanol fuels all along, why have we stuck with gasoline? The likely answer is that ethanol, in the end, is still more expensive than gasoline. When, and if, gasoline becomes more scarce, that relationship may change, but the current incarnation of ethanol fuel, E-85, which is a blend of 85 percent ethanol and 15 percent gasoline, has yet to catch on. Let’s explore some of the reasons why.

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Douglas Adams once wrote, “It can hardly be a coincidence that no language on earth has ever produced the expression ‘As pretty as an airport.’” Airports provide all sorts of mind-bogglingly stupefying experiences. Maybe this is because airports are about as screwed up a place as you are likely to ever visit. Or, maybe it is because of the immense time spent waiting around during various points of the flying process. In any case, every time I am in an airport, I am left wondering, “how can that be?” One of the most curious things (and there are many) about New York City’s LaGuardia Airport (LGA) is the taxi cab situation.

For the uninitiated, cabs at LaGuardia amass in a giant holding pen. When there is a need, they are dispatched to cab lines around the airport to pick up waiting passengers. If the process works smoothly, an exiting passenger goes to a designated taxi area and quickly jumps in the next cab that is waiting in a line of five or six cabs. Of course, things at airports and things in New York rarely work as planned. Put them together, and you end up with that sad, pathetic thing that is known locally as ‘the LaGuardia cab situation.’

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R. Preston McAfee, the J. Stanley Johnson Professor of Business, Economics & Management at the California Institute of Technology, has written an excellent economics textbook entitled Introduction to Economic Analysis. This book is above the level of the standard intermediate undergraduate textbook but not at the level of a doctoral textbook like Kreps or Mas-Colell, Whinston, and Green. It covers the material with lots of applications, and uses calculus to demonstrate a wide set of examples. The most astounding part of this text the the wide breadth of material it covers, including traditional economics topics, plus several others such as game theory, auctions, and antitrust. Professor McAfee has made this book free to the public, so I encourage you to check it out.