5 thoughts on “Sandpit

  1. I notice that John has a post on transport economics issues this week. I reckon it is an interesting field and one that was once taught in Australian economics departments – not just road transport economics but such things as aviation economics and shipping economics. Maybe it is partly nostalgia, but I think there are good reasons for introducing more applied microeconomics subjects in economics curricula around the country that are concerned with the important policy issues we face as a community.

    Health/resource and environmental economics are applied areas sometimes taught these days but I think subjects on transport economics, public finance (and especially tax theory) and specific fields such as defence economics have now almost entirely vanished.

    In my view, it is a pity. There are too many technique-oriented subjects (quantitative economics, game theory and econometrics) and too few courses that teach students how to use their brains to use economic analysis in practical settings that yield big policy payoffs.

    Transport economics is an interesting example.

    Roads, for example, are a complex capital asset. They are a more or less durable asset and there are increasing returns to pavement thickness but often limited possibilities to build very thick roads in Australia because of relatively low traffic. Hence there are important trade-offs between seeking durability and low maintenance costs and traffic levels. There is a discreteness in designing road networks that does not admit standard continuous optimisation techniques. The discrete problems here are tough. Moreover, road network design is subject to “paradoxes” such as the Braess Paradox whereby adding a link can increase congestion on all links in a network.

    The pricing issues – congestion, heavy vehicle damages, car accidents/insurance issues and pollution are important policy issues that teach students how to internalise externalities in a simple context. With efficient pricing, a theory of road supply can be built based on the idea that a road’s capacity can be expanded if it makes a profit. With efficient pricing too the network complications – such as logical paradoxes – vanish.

    I could go on and talk about the role of traffic flow uncertainty, the role of public transport, the role of second best policies etc but the key point I want to make is that much of standard microeconomic theory arises here. Moreover, the issues are practically important with multi-billion dollar public sector costs associated with congestion, road maintenance costs, traffic accident costs as well as the capital costs of building new roads.

    This is a polemical note but I’ll be even more polemical and wonder aloud too how about much value PhD research contributes in the applied economics area these days. What about a PhD on the Australian taxi industry or, for that matter, the electricity sector. Would not such research be more socially useful (and more interesting) than the elaborate intractable model building that often seems heavy on technique and low on thinking and whose outputs ultimately often relies on unconvincing numerical simulations or econometrics.

    Just some thoughts.

  2. I did my Bachelor of Commerce degree at the University of New South Wales, Kensington campus, Sydney; and in my third year I did the optional unit on the microeconomics of the Greater London Council. This covered both the user pays principle, as well as the pricing of council infrastructure and services. The concept that roads and footpaths are social overhead capital, that attracts free riders, was well illustrated in many case studies. But London also has private parks. Some of their old railway stations are now converted private buildings. Private property rights were very much protected by council by laws. The new subway being built for a London Metro extension, will pose significant pricing dilemmas. Of course, Sydney’s problems with its PPP road and rail joint ventures, would be better managed if politicians had any idea about the free rider principle and a clearer idea of the user pays principle. The current proposal to make Harbor Bridge commuters pay $3 each way, so as to cross subsidies the metro commuter using the, as yet to be built, West Harbor Tunnel is simply an inefficient use of pricing policy. User pays means just that, users of the new metro should pay the full price necessary to cover their own transport cost. London showed the way with its congestion charge, no free riders there. The whole area of economic rent also needs to be explained to transport planners. Robert Tollison best explained the traps involved, for the uneducated politician and/or public planner, of not reading a contract carefully before signing away overly liberal pricing powers. Exclusivity may be commercially desirable, but it will always be economically inefficient.

  3. Sequeing to the Economist just in case you did not receive this review from other sources especially as your monopoly on the use of the kafkaesque ‘Zombie’ and the word is in a title of the journal 😉

    How to kill a corporate zombie
    Economist, 15/7/18. An inability to kill off failing companies seems to have two main effects. First, the existence of the zombies drives down the average productivity level of businesses. Second, capital and labour are wrongly allocated to such firms. That stops money and workers shifting to more efficient businesses, making it harder for the latter to compete. In a sense, therefore, the corporate zombies are eating healthy firms.

  4. hc, what you call your ‘polemical note’ is concerned with questions that should be debated more in a public or semi-public forum, IMHO. Economic blogs seem to me to be a suitable forum among others. These important questions concern content and aims of university degrees.

    Gregory J McKenzie contributed to the topic by outlining the content of an option in a Commerce Degree in one of Australia’s major universities. I’d like to come back to this later, if there is interest in the proposed debate.

    I’d like to say a few words in relation to your post, starting with what seems to me the easier segment, namely what are essential requirements for a PhD?

    An empiricist might approach the posed question by carrying out a survey of possibly variable standards of analytical rigour, across all or a sub-sample of PhD issuing higher education institutions and report the results as an answer. I suggest this method is the preferred one for many university administrators, particularly those who some academics would call ‘corporatist’. Hard evidence that ‘our mission and vision statements’ are what ‘the market wants’, etc.

    I don’t think this is what you have in mind. In any case, I don’t.

    IMHO, the essential requirement for a PhD is an original non-trivial contribution to knowledge in a reasonably well delineated area, which does not exclude interdisciplinary questions, given existing discipline categorisation.

    The ‘social value’ of questions asked and addressed in a PhD is, IMO, only tangentially relevant.

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